11 November 2009 Media Statement

Reserve Bank reinforces Banking Inquiry findings

Today’s Reserve Bank Financial Stability Report reinforces findings in the Parliamentary Banking Inquiry, particularly relating to margins charged by banks and to the need for more policy work in terms of banking, monetary and taxation policies, says Labour Finance spokesperson David Cunliffe.

“It is revealing that the FSR points up the pressures on the finances of hard-working New Zealand households. This is something the Government chose to ignore when it shunned the opportunity to take part in a cross-party banking inquiry,” David Cunliffe said.

“The decision by Labour, the Greens and the Progressives to hold their own Parliamentary Inquiry, also released today, has been vindicated by its finding that banks did not pass on the full effect of reductions in the Official Cash Rate to hard-working Kiwis struggling to make ends meet.

“It was revealing that when Reserve Bank Governor Alan Bollard appeared before today’s Finance and Expenditure Committee he confirmed that bank lending rates returned to more normal levels during September and October.

“This may just be a coincidence --- although a welcome one --- given that the Parliamentary Banking Inquiry began on 2 September.”

David Cunliffe said Dr Bollard had also confirmed publicly today that the Reserve Bank was also exploring measures to complement the OCR, “saying the Reserve Bank was intending to implement capital adequacy and other measures under Basel II in a counter-cyclical manner complementary to the OCR. This significant advance is in line with the recommendations of the Banking Inquiry.

“The Banking Inquiry noted concerns about serious defects in current monetary policy, including ineffective controls over credit expansion, an excessively volatile exchange rate and perceived biases in the tax system in favour of buying property and against producing goods and services.

“Dr Bollard is clearly concerned about such issues too. Kiwi families, businesses and the farming sector, who have struggled to cope with bank interest charges, can only hope that the Government now also accepts its responsibility to join the search for ways to reduce our vulnerability to external shocks in the future.”

ENDS

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