Editorial: An inquiry that's worth banking on

There is clear logic for a parliamentary inquiry into bank charges, as much as Jim Anderton may protest. To the Alliance leader, the exercise is superfluous. People, he says, are "sick and tired of being overcharged to put their money into a bank account, overcharged to keep it there, and overcharged to take it out."

That, however, is not the dominant message of those who back Mr Anderton's own hobby-horse, a Government-owned Kiwi Bank. In a recent poll, 67.3 per cent gave a desire for local ownership as their main reason for supporting a Kiwi Bank. Just 28.5 per cent said their main priorities were lower fees and better service.

Perhaps what is really miffing Mr Anderton is the motive for an inquiry. Could it be a deliberate attempt to sidetrack Kiwi Bank by a Minister of Commerce who is concerned at that project's potential cost to the taxpayer?

Whatever the reason, it is wrong to assume that no good can come of an inquiry. At the worst, it will force banks to examine their practices. Do some banks, for example, really want to be in retail banking when the vast bulk of their profits comes from a relatively small number of business customers? The cursory regard of such banks for those with small accounts reflects badly on the sector's standard of service. At best, an inquiry could force reform.

A recent British review of banking services extracted a promise from the automatic teller machine network that there would be no double-charging for withdrawals and that customers would be informed in advance of withdrawal fees.

A New Zealand inquiry would, of course, encounter a rich vein of discontent. As the Weekend Herald's investigation has detailed, banking has changed dramatically over the past decade. Many small towns have been left out in the cold by the halving of the number of branches. Yet we also have fewer automatic teller machines than other similar countries.

Worst of all, perhaps, we have been subjected to a mushrooming array of bank fees. All the while, the big five banks have increased their profits. Last year, they boosted after-tax earnings by 37 per cent to a record $1.6 billion.

The banks, however, are not without their defences. Their net interest margin last year was just 2.4 per cent, compared with 3.1 per cent in Australia and the United States. And few would deny that our banks are far more efficient than those in countries such as Britain.

Quite correctly, the Minister of Commerce does not support heavy-handed regulation to force down bank fees and charges. Nor, in all likelihood, would an inquiry back this.

Britain's Cruickshank inquiry and an earlier Australian investigation both saw increased competition as the key. And neither believed that banks should be coerced into providing fee-free services for their low-income customers.

This would simply entrench the existing monopoly. The British report particularly favoured banks being required to state clearly all relevant charges before a transaction is done.

Greater transparency is clearer also one of the Commerce Minister's hopes. But if his wish is to derail Kiwi Bank, he must hope the banks start paying greater heed to popular discontent. If not, Kiwi Bank is an obvious means of introducing competition.

The appeal of cheaper banking to those on low income is obvious. But Kiwi Bank will only extract a reaction from the major banks if customers of more substantial means flock to it.

In that happy event, the impact of competition will be worth banking upon.

The banks - a Herald series

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