Deputy Reserve Bank Governor Grant Spencer. Photo / Jason Oxenham
For a decade now, Grant Spencer - who takes over as Reserve Bank governor from September 26 - has been the guy we pay to worry about how much we owe.
As deputy governor and head of financial stability, Spencer leads the team charged with ensuring our banking system is not taking on too much risk and threatening the economy.
READ MORE: • Nation of Debt: Half a trillion dollars and still rising
It doesn't get the intense media coverage that we give to monetary policy and interest rate decisions, which have a more immediate impact on our back pockets.
But the stakes are arguably higher. When financial stability gets interesting, it also gets frightening - as we saw in the 2008 financial crisis.
A year ago, when the Business Herald tallied the country's gross debt levels for the Nation of Debt series, things were starting to get precarious.
The red hot housing market was accelerating the rate of mortgage borrowing to record levels and a dairy downturn was threatening to put the squeeze on heavily indebted farmers.
Nominally, gross national debt has continued to rise in the past year - topping half a trillion dollars - but it's fair to say Spencer is feeling more relaxed these days.
"In housing, credit growth and household debt, things have definitely improved," he says when we sit done for a chat the day after the release of the bank's Financial Stability Report.
Crucially, the rate of increase in our household debt levels has started to drop - largely because the Auckland housing market has finally cooled.
"We think the LVRs [loan to value ratios] have been an important part of that," he says, referring to the latest round of lending restrictions which, from last October, required investors to hold deposits of at least 40 per cent.
Similar restrictions were introduced in 2013 and 2015, but had only limited success in slowing the market.
This time the effect has been more pronounced, Spencer says, because we're also seeing a "more risk averse approach to credit expansion on the part of the banks".
"Part of that is nervousness about the housing sector, but also the funding and reduced supply of deposits that they've got coming through the door," he says.
"They are swimming in the same direction now as the policy, which wasn't necessarily the case in the earlier LVR rounds."
So there is a positive story there in terms of overall credit growth easing, he says.
"Then you say: how is that helping in terms of overall debt burden on the household sector?"
The overall growth in housing debt has been about 8 per cent in the past year.
Nominal income growth is lower than that, so over the year, that means that household debt relative to income has increased to about 168 per cent, Spencer says. "We'd like to see that trend down rather than up."
But if you look at credit growth over just the past six months, it's probably more like 5 per cent per annum, he notes. That's starting to come more into line with income growth.
In Auckland at least, double-digit growth in house prices petered out around October last year.
That has resulted in the growth rate of mortgage lending falling for each of the past four months.
As long as the housing market stays flat, it should continue to cool.
"That's positive, but the debt ratios are still pretty high and the household sector is still vulnerable to higher interest rates and/or reduced incomes," says Spencer.
If the housing market picks up again in a few months - as many in the industry predict - then the Reserve Bank may have to look at other measures.
It is still working with the Government on adding debt-to-income (DTI) restrictions to its toolbox.
Spencer wants to be very clear that they don't see the need to deploy those restrictions if the current trend continues.
But the bank wants to be ready. In a document released last week, the RBNZ said setting a limit on mortgages of more than five times income would be appropriate.
Its data showed 27 per cent of lending is at a debt-to-income ratio of six times or more, and a further 13 per cent at a ratio of between five and six times income.
Banks, in the history of commerce and civilisation, have developed for a reason: they facilitated spurts of growth as a result of more efficient financial intermediation than you get if you're just trading with your family or neighbour.
Reserve Bank stress tests have highlighted the risks to the most indebted homeowners if mortgage rates rise significantly.
In its Financial Stability Report, it estimated that about 4 per cent of all borrowers, and 5 per cent of recent borrowers, could not meet their essential expenses and would face severe stress if mortgage rates were 7 per cent.
A further 2 per cent of all borrowers and 7 per cent of recent borrowers would only have a small buffer after meeting their mortgage payments and essential expenses and would suffer mild stress.
It's worth noting that mortgage rates of 7 per cent aren't high - they are in line with the historic average.
At 9 per cent mortgage rates, some 7 per cent of all borrowers and 18 per cent of recent borrowers were expected to face severe stress.
Floating rates were above 10 per cent as recently as 2008.
"The speed [of rate increases] is important because if things are gradual most people can manage it, " Spencer says. "The ones that are hit hardest are the ones that have taken out a new loan in the past year or two. Typically, if you've had your mortgage for longer than that you're in much safer territory."
So a sudden spike would be bad news.
Spencer sees the prospects for the kind of market shock which might cause that as being pretty slim right now.
Rates are still at historic lows; the US is expected to keep lifting them, but at a very gradual pace. There is still no sign of global inflation and financial markets are pretty benign.
But we have to keep a close watch because as a small, indebted country we are vulnerable, he says.
"We do get influenced by changes in global markets."
Spencer comes across as decidedly even-handed in his attitude to debt. It's his job to be wary of debt and keep banking excesses in check, but he doesn't see debt as an inherently bad thing.
"It's not like an it's an evil ... it facilitates economic activity, it facilitates investment."
With an academic background in economics and maths, Spencer has spent much of his career with the Reserve Bank in various roles. But he has also worked for the International Monetary Fund (IMF) and for ANZ.
He's well aware of the distrust many people have for the banking system, and the case some economists make for radically tightening the credit system.
But he's not convinced radical change is required.
"It's a question of balance," he argues. "Some of those theories about big capital don't look at the bigger picture of the whole economy. They just think banks are risky because they are highly leveraged."
Banking sector critics argue that the system would be safer if the banks were required to hold more capital, and their ability to apply leverage was reduced.
"But banks, in the history of commerce and civilisation, have developed for reason: they facilitated spurts of growth as a result of more efficient financial intermediation than you get if you're just trading with your family or neighbour."
He accepts that also introduces risk: "a more cyclical economy than you otherwise might have. You want the benefits of financial intermediation without causing excessive credit cycles of boom and bust ... normally associated with asset price cycles."
We all have different risk appetites and different views on how much risk is reasonable at a national level.
In a sense, Spencer and his team are the arbiters, the referees, deciding how much private sector debt is allowed.
He says he's doesn't have a specific debt level in mind.
"It's always hard to pick a neutral number. We've looked at this in different countries and done research and asked: what's a sustainable ratio?"
"We tend to look more at trends - when it's going up and particularly when it's accelerating, the red lights start flashing - so it's good to have it coming back to historic norms."
You have to apply some context to the historic trends, too.
New Zealanders in the 21st century have a different set of expectations about access to credit.
"We're never going to go back to some of those debt ratios of the 1960s," Spencer says. "So the neutral is somewhere higher than that. But it's hard to pick.
"You've got to think of the household sector not just the banking system itself."
Leverage serves a purpose from a saver's point of view, too, he notes.
It allows banks to offer deposits with stability and liquidity - which is where the bulk of people prefer to have their savings.
"There is no easy solution, and it's not as easy as saying let's make banks look more like ordinary corporates. Instead of people putting money into the bank as deposits ... everyone would effectively have to hold bank shares.
"You can't just get rid of the risk - you transfer it from the banking sector to the household sector."
The Reserve Bank is actually in the process of reviewing the capital requirements for banks - with consultation documents likely to go out early next year.
It's possible they will be tightened - as even the IMF suggested they should be in its assessment of our financial system published last month.
Spencer, fellow deputy governor Geoff Bascand and assistant governor John McDermott have all worked for the IMF, so it seems likely they'll look closely at its recommendations.
But don't expect radical change.
The New Zealand regime has to be set against a backdrop of increasingly complex international regulations, Spencer says.
"We do want to simplify our regime as well as keeping it conservative," he says.
• Born and raised: Wellington NZ
• Position: Reserve Bank deputy governor, head of financial stability
• Qualifications: BA (Hons) economics and information science, Victoria University; MSc in econometrics and mathematical economics, London School of Economics and Political Science
• Previous roles: RBNZ assistant governor and head of economics, and other RBNZ positions; ANZ Banking Group; IMF special adviser
• Family: Married, two daughters
House prices will be 20% lower in real terms by the mid-2030s than in 2021.