Liam Dann: Without appetite for real change, banking inquiry is just political theatre

The four big Australian-owned banks operating in NZ. Photo / NZME

OPINION:

There’s plenty of public annoyance about the big money the Aussie banks are making.

They have really cashed in on financial conditions that were engineered to buffer us through a pandemic.

But I’m not sure there is much public appetite for an inquiry into the banking sector.

The National Party this week called for a short, sharp Select Committee inquiry.

The Bankers Association welcomed National’s call, which is a pretty good indication of how worried the industry was about it.

Finance Minister Grant Robertson was pretty ambivalent and suggested any inquiry would need to be more wide-ranging.

But unless we think an inquiry (of any scale) will lead to a material change in the sector, what’s the point?

The Reserve Bank has published all the data.

The banks made record profits and lifted their margins on lending at a time when rates are rising and inflation is high and everyone else is seeing margins squeezed.

It’s not endearing behaviour, but they did it because they could.

Complaining about banks making money is a bit like blaming a wolf for eating your sheep. Wolves do what they do. It’s on the shepherd to protect the sheep.

I can’t see any appetite within Labour or National for giving the sector a real shake-up, so calls for an inquiry are just political theatre.

The Greens and the Act Party would both be open to policies that deliver real change - although from polar opposite political perspectives.

The Greens are advocating a windfall tax - the kind the Conservative government in the UK has applied to energy companies.

Act came out against that. It argues more competition is the only efficient way to lower the costs of banking and borrowing.

It’s non-specific but favours less regulation and would presumably be happy to create a fifth major bank by selling Kiwibank.

I’ve long been an advocate for a partial sale of Kiwibank.

Unlike our woeful track record with full privatisation of state assets, partial privatisation has been very successful in this country.

But, weirdly, even talking about that is a step too far to the right for the current National Party.

Both National and Labour both played a big part in the process that led us to the current state of the banking sector.

It’s worth taking a look at how we got here:

Up until the late-1980s the state-owned four major banks: Postbank, the Bank of New Zealand, Rural Bank and the Development Finance Corporation (for business lending).

There was also a regional network of provincial community-owned trust banks and the British-owned National Bank.

Building societies and other non-bank finance companies were also active and significant players in the lending market, making up 20 per cent of the sector by 1984.

Countrywide Building Society was so popular it became a full bank in 1987.

So New Zealanders had a choice in the old days although not necessarily more competition.

The sector lacked access to international capital, it was not very dynamic, lenders were conservative and getting a mortgage was tough.

In 1984 we decided to open our markets to the world and, over the next two decades, we sold off all our banks.

The arguments made at the time for these sales were that international ownership would bring more investment, more efficiency and more competition to the market.

I think, if we’re honest, the asset sales were also driven by a desperation for money (the crown accounts were in dire shape) and a dismal lack of confidence in our own ability to do things like banking.

So in 1989, ANZ bought PostBank from the government for $665 million.

The Commonwealth Bank of Australia bought 75 per cent of the ASB Bank in 1989 (it got the rest in 2000).

BNZ almost collapsed, was bailed out by the government in 1990 and then sold to the National Australia Bank in 1992 for $1.5 billion.

Around the same time, nine regional savings banks merged into Trust Bank, and then in 1996 they sold out to Sydney-based Westpac for $1.2 billion.

Countrywide took over the former United Building Society and then sold the combined business to The National Bank. The National Bank also bought the Rural Bank.

So by 2001, we had five big banks - all owned in Australia or Britain - controlling 90 per cent of the country’s bank assets.

Our housing market obsession has driven bank profits. Photo / 123RF

In 2001, Labour listened to Jim Anderton and created state-owned Kiwibank.

But then in 2003, the Commerce Commission allowed ANZ to buy National Bank.

ANZ even admitted the merged entity would fall outside the Commission’s “safe harbour” rules - designed to prevent any player from having too dominant a market position.

But it argued New Zealand’s banking sector was competitive and dynamic and says there were no barriers to stop customers from switching banks.

The Commerce Commission bought it.

And here we are.

It reads like a dog’s breakfast of a process but I think we do have a more dynamic banking sector now - in the sense that it’s easier to borrow.

The trouble is that collectively we borrowed to turbocharge property investment, not business investment.

We used foreign money to inflate our own house prices and super-size our mortgages.

It’s made many of us very comfortable but the trade-off is we’re sending billions offshore in bank profits every year.

We’ve also made it very hard for younger generations to buy a house.

Who’s to blame? We are of course.

And if we really want change then it’s on us to convince our politicians to make it.