English dismisses banking inquiry

Reserve Bank Governor Alan Bollard. Photo / Mark Mitchell

Householders with mortgages have more power to influence banks than Opposition MPs holding an inquiry into the banks' lending habits, says Finance Minister Bill English.

Left-leaning political parties in Parliament have decided to hold their own inquiry into banks after Reserve Bank governor Alan Bollard said floating interest rates were too high.

Government, Act and Maori Party MPs on Parliament's finance and expenditure select committee blocked a parliamentary inquiry.

The new inquiry by Labour, Green and Progressive MPs will look at the relationship between the official cash rate and short-term interest rates.

It will not have the power of a select committee to call witnesses or insist that the Government respond to its report.

Labour's finance spokesman, David Cunliffe, yesterday accused Mr English of fearing an inquiry and asked whether the banks had told him they would stop lending if one went ahead.

Mr English said he had not received any correspondence like that and banks' customers had the power to influence their behaviour.

"Customers of banks have the opportunity to choose lower rates than the floating rate - being the fixed six-month and one-year mortgage rates," Mr English said.

"When customers make that choice I might say it will have a much bigger effect on the banks than a meeting of Opposition members in a phone box with their supporters."

Mr English said banks' profit margins were now 30 per cent lower than they had been in recent years. Prime Minister John Key said the issues were known and understood and an inquiry would not add to that.

Banks believed their cost base had been rising because of the way they funded themselves largely abroad, while the Reserve Bank thought fixed rates were at an appropriate level but floating rates could be reduced.

Mr Key said if Dr Bollard had ideas, he wanted to hear them.

"We have an impasse now. If there is something that should be done, let's act. We don't need another inquiry, let's do something about it. But to do something about it, we need some suggestions."

Labour leader Phil Goff said an inquiry was worth holding.

"It's not a farce and it's not a stunt. This is a serious inquiry into a serious issue."

Green co-leader Russel Norman said that whether the inquiry was carried out by a select committee or another group, the main thing was to hold one.

Mr Cunliffe said he had contacted Dr Bollard about it "and [I] anticipate that he will want to take the steps [to do that]".

Dr Bollard would need Mr English's permission. A request had yet to be made, Mr English said. A spokesman for the Reserve Bank refused to comment.

Mr Goff said he expected the Government would not want to stifle public debate.

Banks had been invited, but they were noncommittal in their initial response.