RBNZ capital requirements will hurt farmers, businesses
Thursday, 5 December 2019, 2:01 pm
Press Release: ACT New Zealand
RBNZ capital requirements will hurt farmers, small
businesses
“The Reserve Bank’s requirement for
banks to hold more capital will act as a handbrake on the
economy at a time of serious uncertainty”, according to
ACT Leader David Seymour.
“The move will increase
borrowing costs and reduce lending, putting even more
pressure on farmers and small businesses.
“A
cost-benefit analysis done by former Treasury Secretary Dr
Graham Scott argues the proposals will impose significantly
higher costs on the economy than it will deliver in
benefits.
“Dr Scott’s analysis suggests the policy
will cost households and the economy $1.8 billion each year.
The move will reduce economic output by $2.7 billion a year
– through higher interest rates and lower firm investment
– for a hypothetical benefit of $900 million.
“Costs
will be imposed unequally. Riskier borrowers, such as
farmers and SMEs, 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 inequitable.
“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 is that it may
force borrowers to rely on non-bank lenders. This risks
creating a larger unregulated shadow banking industry,
setting up a collapse reminiscent of the finance company
collapses a decade ago.
“Our banks are already
well-capitalised by international standards. The proposals
are a solution looking for a problem. If the Reserve Bank
forces businesses and farms under, it may well find the very
problem it was seeking to
solve.”
ends
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