Willis said watering down the capital rules “could make a difference to the productivity and growth of the New Zealand economy, and therefore to New Zealanders' incomes”.
“My focus is on, how can we take further steps to reduce the cost of living for New Zealanders and give them opportunities to get ahead, and I think that could be an opportunity.”
Asked if she was open to changing legislation to force the RBNZ to loosen its rules, Willis said, “Whether or not I need to do that is something I’m taking advice on”.
Willis clarified she hadn’t taken recommendations to Cabinet and couldn’t put a timeframe on when she would have more to say on the matter, noting Parliament’s Finance and Expenditure Committee is still doing its inquiry into competition in the banking sector.
The chief executives of ANZ, ASB, BNZ and Westpac are due to appear before the committee for the second time next week. The RBNZ is yet to appear.
The issue of bank capital has been a hot topic of the inquiry.
While the chief executives of the major banks have refrained from using public hearings to vocalise any support for deregulation, loosening the rules could boost their profits.
As for the small banks, some have argued the rules disproportionately disadvantage them.
Furthermore, businesses and farmers complain the rules encourage banks to charge them high interest rates and favour lending to those seeking mortgages, because banks can hold less capital for this type of relatively low-risk lending.
However, the RBNZ is adamant the rules, which it started consulting on several years ago, are necessary to keep banks strong and stable.
It wrote to the select committee to say they only pushed up the interest rates of riskier loans a little.
The RBNZ observed big differences between the interest banks charged small and large businesses for loans with similar risk profiles, suggesting the variance couldn’t be put down to the capital rules alone.
It noted banks considered a range of factors when setting interest rates, including rates they paid to secure funding from wholesale markets or depositors, their operating costs, the allowances they left to cover more predictable losses, and the margins they sought to add.
The RBNZ also made the point that even if there were no rules, banks would still put more capital aside for loans subject to higher unexpected losses in the event of a crisis.
Orr is known to have been invested in ensuring the rules are set at a conservative level to protect banks in the face of a 1-in-200-year crisis.
Debate on the matter got nasty pre-Covid, before the Commerce Commission’s 2023/24 study into banking competition then put the issue back in the spotlight.
In May last year, Orr even wrote a fiery letter to the editor of the Herald to take aim at an opinion piece critical of the rules, written by the head of the partially bank-funded think tank, the New Zealand Initiative.
Willis wouldn’t go so far as to say she wanted the next RBNZ governor to be a supporter of looser capital rules.
“It’s important that the next governor of the RBNZ has the skills and experience required to do the role, and that is a matter for the RBNZ board to consider as it makes its recommendations to me,” she said.
Christian Hawkesby - who was Orr’s deputy and is filling in for him until March 31, when an acting governor will be appointed - was heavily involved in the formulation of the bank capital rules.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary Press Gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
