Commerce Commission to deliver its final verdict on competition in the banking sector this morning. Photo / NZME
The Government appears willing to take action in response to the Commerce Commission’s study on competition in the retail banking sector.
The competition watchdog will, at 8.30am today, release its final report on the study the Labour Government asked it to do.
Key recommendations in its draft report, released in March, include: the Government enabling Kiwibank to grow, the Reserve Bank (RBNZ) changing its bank capital rules so small banks can better compete with large banks, and the Government having open banking operational by 2026.
Finance Minister Nicola Willis is open to diluting the Government’s 100% ownership of Kiwibank to enable it to access more capital.
In April, government ministers wrote to the board chair of Kiwibank owner, Kiwi Group Capital, asking him to provide options for growing the bank.
Willis is also considering asking the NZ Super Fund and Accident Compensation Corporation (ACC) if they want to reinvest in Kiwibank, and weighing up whether to welcome capital from other investors, including KiwiSaver providers and iwi, and/or partially floating the bank on the New Zealand stock exchange.
She isn’t keen for the Government to sell down its stake in Kiwibank, however decisions are a wee way off being made.
Potential investors the Herald spoke to, including the Super Fund, said Kiwibank’s share price would likely be discounted if the Government put conditions on shares – i.e. required them to remain New Zealand-owned.
As for the commission’s recommendation for the RBNZ to change its bank capital rules – the regulator is strongly opposed to this.
In April, the RBNZ released a statement voicing its disagreement with the commission.
“The current bank capital framework is the result of a careful and extensive review process that occurred recently and is still being phased in,” it said.
The rules will be fully implemented in 2028 – more than 10 years after the RBNZ started consulting on changing them.
“The commission’s suggested changes to our risk-weighting framework in the draft report would lead to very marginal benefits to competition, and could have unintended consequences and put us out of step with international regulatory approaches,” the RBNZ said.
The RBNZ’s position was so strong that governor Adrian Orr wrote a fiery letter to the editor of the Herald taking aim at a column critical of the capital rules, written by a partially bank-funded think tank, The NZ Initiative.
Willis, in an interview with the Herald this month, said she was open to forcing the RBNZ to change its capital rules, should she be convinced this would support competition and efficiency without compromising financial stability.
Separately, she said she’d sought advice from the RBNZ on the way it remunerates banks for the settlement cash they keep at the RBNZ.
The RBNZ currently pays banks the official cash rate (OCR) on these funds, used to settle transactions.
The RBNZ’s Covid-era money printing programmes saw the value of these accounts shoot up eight-fold to $56 billion, before dropping back to $38b in June.
Former Finance Minister Grant Robertson received advice on paying banks a lower rate on some of their balances to save the Crown money, but the RBNZ strongly opposed this idea, fearing the change could affect the effectiveness of monetary policy.
Willis wants to better understand how the arrangement affects competition among banks.
As for open banking, the idea is for this to enable bank customers to share their personal bank data with third parties, such as financial technology firms that can provide banking services – make payments, or help with budgeting, for example.
A bill aimed at facilitating this sort of data-sharing across the economy – the Customer and Product Data Bill – is making its way through the parliamentary process.
The Commerce Commission is also due to deliver its ruling on whether the bank-funded organisation, Payments NZ, can be tasked with creating and overseeing a framework for open banking in New Zealand.
The technology that enables banks to link up with third parties is well understood.
The pinch-point is commercial – on what terms, and at what cost, should banks share their customers’ data, should their customers request this? And who is liable if something goes wrong?
Banks are currently having these discussions with fintechs on a case-by-case basis.
Jenee 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.