Former Reserve Bank governor Alan Bollard became a Companion of the New Zealand Order of Merit for services to the state in the New Year honours list. His successor, Graeme Wheeler, may be similarly rewarded in a few years, but his chances are not bright if Green Party co-leader Russel Norman happens to be the Minister of Finance when he steps down. Dr Norman has accused him of misleading Parliament about the financial health of the banks and of being the banks' champion when it is part of his job to regulate them.
In his first appearance before Parliament's finance and expenditure select committee, Mr Wheeler had used returns on assets to declare our banks about average or below those of most OECD economies. When Dr Norman later brandished profitability measures to challenge the new governor's credibility and neutrality, Mr Wheeler said his analysis had not been complete at the time of the select committee hearing and he had provided information based on his understanding at the time. He denied being biased towards Australian banks.
A report published just before Christmas shows Dr Norman has some support among the committee's members. They found it "a matter for deep concern" that Reserve Bank data placed Australasian banks as the fourth most profitable in the OECD on the basis of their returns on assets while data from the Bank for International Settlements suggested Australasian banks were the most profitable in the world in 2011. But why fret? The country is better served by profitable banks than unprofitable ones.
A second concern has more merit. The four major New Zealand banks are subsidiaries of Australian companies and the financial drain when their profits are repatriated contributes significantly to our current account deficit. But that horse bolted years ago. Moreover, if we bypassed the banks to secure credit, we would likely have to go offshore because we don't supply enough savings domestically. As Reserve Bank assistant governor John McDermott told the committee, we can pay for our finance through dividends or higher interest rates. Either way, the economy must pay that price until we generate enough savings for the investment needed for development and jobs.
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