RBNZ review of bank regulation smacks of political interference, critics say

The question of political interference at the Reserve Bank of New Zealand hangs in the air as it prepares to review the commercial bank capital rules, according to several long-time bank watchers and the Government ’s Opposition . At the end of March, the Reserve Bank (RBNZ) announced a plan to reconsider, and potentially loosen, its rules on the level of capital it requires the commercial banks to hold – while the RBNZ is best known for setting monetary policy , it also regulates the banking sector , an area known as prudential regulation. Under former Governor Adrian Orr in 2019, the RBNZ undertook a fractious and much-criticised review of bank capital rules and lifted the requirements; the changes are still phasing in.

The new rules make the commercial banks better able to withstand economic shocks, but the extra capital they are required to hold is expensive for the sector, a cost that flows through to bank customers. Under the current Government, there has been rising pressure on the RBNZ to loosen the capital settings to boost economic growth. Finance Minister Nicola Willis mused on the subject in an interview with the Herald in August last year, and last month she confirmed that she was taking advice on how she might compel the bank to relax the rules.



Orr showed no willingness to reconsider whether the capital settings were too stringent. However, he abruptly left his post as governor on March 5, and it was under acting Governor Christian Hawkesby and RBNZ chairman Neil Quigley that the bank agreed to a U-turn ..