Bollard wants banks to front up over rates

Alan Bollard. Photo / Mark Mitchell

Government MPs voted against an inquiry into banks' variable rate mortgage margins this month despite hearing from Reserve Bank Governor Alan Bollard that an explanation from them would be "very helpful".

In the finance and expenditure committee's report on the Reserve Bank's June monetary policy statement, Dr Bollard is quoted as again telling the committee that the major banks' margins on floating and short-term rates were too high.

When asked by Labour Party finance spokesman David Cunliffe how he felt, "in the full light of inquiry" if Parliament were to "seek to shine some sunlight on banks' accounts", Dr Bollard said: "It would be very helpful if the select committee were to hear from the banks on this."

Yesterday, Mr Cunliffe told the Herald Dr Bollard's testimony had been discussed by the select committee shortly before the session last week at which National, Act and Maori Party MPs had voted down the inquiry proposal.

At the time the committee chairman, National's Craig Foss, said an inquiry was of little value as it could not affect actual interest rates.

Dr Bollard also told the committee last month he had continued to meet bank executives to discuss margins on variable and short-term lending rates.

"I may go further and talk to the boards. It is still their decision to make on these things. I'm asking them to weigh up the two sides to this equation: their shareholders versus what the New Zealand economy needs to get through this."

There were "very big powers" in the Reserve Bank Act to dictate banks' interest rates, but he was loathe to use them as they "could have unexpected, unforeseen, and distortionary effects".

In its report published yesterday, the committee urged banks to reduce their short-term lending rates further.

"Unduly high interest rate costs could lead to the closure of businesses that may be fundamentally sound but may be experiencing short-term liquidity problems due to the current economic environment."