Kiwibank would get a $100 million capital injection to turbo-charge its expansion and create more competition in the banking sector, under Green Party policy.
In announcing the policy today, co-leader James Shaw said a lack of competition among the big Australian-owned banks meant Kiwis were missing out on lower mortgage rates.
"Beefing up" Kiwibank would lead to lower interest rates and could save homeowners hundreds of dollars, Mr Shaw said.
"Under our plan, a first-home buyer in Auckland with a $500,000 mortgage could save $690 a year, meaning they pay off their mortgage earlier."
Across the entire economy, these mortgage savings alone translate into savings of $312 million a year.
That's a massive saving for NZ Inc.
"We'll help Kiwibank to grow faster by injecting $100 million of capital into the bank and let it retain more of its profits."
Labour leader Andrew Little said he would not rule out legislating to force banks to pass on cuts by the Reserve Bank, after some banks failed to fully respond to a cut to the OCR to a new record low of 2.25 per cent.
That threat drew scorn from National, and the Green Party responded by saying it was not a measure it would look at.
On TVNZ's Q+A programme today, Mr Little said he stood by his statements, which were about sending a clear signal to the banks to change their behaviour.
"I stand by the stance I took, which is to get very heavy-handed with the banks. Because the truth is when the banks fail to follow the signal that the Reserve Bank is sending, that's keeping money out of the back pockets of ordinary Kiwis.
"If the banks don't want to play ball when it comes to the way we run our monetary policy, actually, there's only one outfit that can really take them on, and that's the government."