A former Cabinet minister once told me that all a government needed to do to make petrol cheaper was to mention they were dissatisfied with fuel companies and were pondering an inquiry.
They chuckled that it was always interesting how quickly large companies could dig into their margins to lower prices when they knew the government was watching.
The Prime Minister's salvo at New Zealand's banks on Monday, warning them they were operating outside their social licence, was made in a similar vein. Jacinda Ardern doesn't want a war with banks, but she wants to make sure that they're on their best behaviour as the economy enters what most commentators (including Ardern herself) think will be a particularly difficult year.
Ardern can't stop the mortgage pain, and nor would she want to. Banks hiking lending rates is a natural flow-on from the Reserve Bank's decision to hike the official cash rate to fight inflation. Ardern clearly has no problem with this, as evinced by her Government's reappointment of Governor Adrian Orr on Tuesday.
While banks have little choice but to pass higher borrowing costs on to consumers, they do have a choice over how they treat distressed borrowers, be they homeowners or businesses.
The Government would clearly rather banks took a generous approach in this regard, helping distressed homeowners and businesses weather the higher costs they're likely to face in coming years. The last thing a government wants is bleeding heart stories of mortgagee sales and closing businesses in an election year.
The Government and the banks know there’s an easy way and a hard way of ensuring good behaviour. The easy way is for banks to be on their best behaviour voluntarily, the hard way is announcing an inquiry and implementing new regulatory recommendations.
Both the Government and the banks would prefer option one.
There are questions about just what the Government would do to the banking sector. Higher taxes are a non-starter.
New Zealand wants to remain an attractive country for banking investment and the last thing any government would want is one of the big four Australian-owned banks pulling out of the market. Nor would any government want to impose restrictions that would seriously dampen banks' profitability.
The one thing worse than a super-profitable bank is an unprofitable bank, or New Zealand's four Australian-owned banks turning into just two or three.
There are questions about just what banks are meant to do during a downturn. They might cut their margins by putting deposit rates up. They're very limited in the extent to which they can shelter borrowers from the OCR.
During the pandemic, the Government was frustrated with the relatively small amount of lending banks were doing to businesses that needed help weathering that financial storm.
The defence from banks was that any lending needed to be at least somewhat commercial - and lending to businesses at the beginning of the pandemic was very much not the kind commercial banks had in mind.
In the end, the Government grew frustrated enough it legislated itself into a miniature bank, giving IRD the ability to issue loans through a now infamous bill that was accidentally passed after a mistake from the Parliamentary Counsel Office.
The Government also appreciates New Zealand's banks aren't the equal of their naughty Australian owners. After the Australian banks were subjected to a Royal Commission in 2018, the Reserve Bank and the Financial Markets Authority reluctantly held a much smaller inquiry into banks' conduct and culture.
Nothing horribly offensive was uncovered and banks agreed to ditch sales incentives for frontline staff to ensure customers were being sold the products on the basis of need rather than short-term incentives.
A more powerful inquiry, perhaps an Australian-style Royal Commission isn’t being contemplated right now. Neither the Government nor the banks want one and after what was uncovered in Australia the banks know it’s in their interests to behave well enough to avoid it.
This will become an increasing problem next year.
Remember, New Zealand homeowners have only just begun to see the effects of higher interest rates. Data published by the Reserve Bank in last week's Financial Stability Report showed the average interest rate on New Zealand's fixed lending stock was just under 4 per cent, well below the average 1, 2, and 3-year fixed rates that were all hovering at about 6 per cent.
The real pressure will come when more borrowers refix in the next 12 months - that is precisely when the Government wants banks on their best behaviour.
No one wants mortgagee sales in an election year, not the banks, and certainly not the Government.