“The Reserve Bank should heed the call of the New Zealand Bankers’ Association and abandon its flawed proposals to increase capital requirements for banks,” according to ACT Leader David Seymour.

“A report by former Treasury Secretary Dr Graham Scott on the proposals is damning. Dr Scott’s analysis suggests the policy will cost households and the economy $1.8 billion each year.

“These proposals would act as an handbrake on the New Zealand economy and lower our living standards at a time of growing economic uncertainty.

“The policy would reduce economic output by $2.7 billion a year – through higher interest rates and lower investment by firms – for a hypothetical benefit of $900 million. This is a conservative estimate – the costs could be much higher.

“The Reserve Bank is promoting a policy that would impose significantly higher costs than its benefits.

“Worse, the costs will be imposed unequally. Riskier borrowers, such as a farmers and small and medium-sized enterprises, will face a disproportionate increase in interest rates and a reduction in lending. By impacting particular sectors disproportionately, the impact of these proposals will be unfair.

“The irony of the Reserve Bank’s proposals is that by putting pressure on sectors such as farming, it risks putting people out of business, and contributing to the instability it is supposed to be fixing.

“Another unintended consequence of the policy is that it may force borrowers to rely on non-bank lenders. This risks creating a larger unregulated shadow banking industry, setting us up for a collapse reminiscent of the finance company collapses of a decade ago.

“According to Dr Scott, the Reserve Bank has not articulated what it believes is wrong with the status quo. Banks are already well-capitalised by international standards. The proposals are a solution looking for a problem. However, if they force businesses and farms under, they may well find the very problem they were seeking to solve.”

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