The Reserve Bank’s releases on proposed investor finance controls

I noted yesterday that the Reserve Bank had also released some papers on the proposed new LVR restrictions on Thursday.  When that release was pointed out to me yesterday, the Bank’s website suggested that the papers had been released in response to an OIA request.  The papers still appear in the obscure corner of the Bank’s website where (in a welcome development) they have started publishing some of the responses they make to OIA requests.

But when I checked again this morning, the table now says of the latest release:

Date of Response Subject matter
25 June 2015 Loan-to-value ratio (LVR) restrictions, proactively released, jointly with the Treasury

Go through to the detailed page, and it suggests that the release is partly pro-active and partly a response to an OIA request.

This is information relating to loan-to-value ratio (LVR) restrictions that has been released proactively and in response to requests for information under the Official Information Act 1982 (the Act).

I’m a little confused.  But if there genuinely is a pro-active component to the Bank’s release then I welcome it, even if (say) they may just have released one additional paper to provide context for a few that were covered by the OIA.

It still leaves a little bit of a puzzle about the Treasury’s (entirely pro-active) choice to release.  Sometimes documents requested of one organisation cross-reference material generated in other organisations, but that does not appear to be the case here.  Perhaps the OIA request to the Reserve Bank included material the Bank held, even if it did not generate it.  If so, no doubt the Bank held copies of at least some of the Treasury papers?    But having been on the receiving end of numerous OIA extensions from the Bank (and recently one from Treasury), when documents written little more than 20 working days ago are pro-actively released, it has the feel of a genuinely deliberate timing choice.

But enough of the bureaucratic process stuff.  What I had intended to write about was the content of the Bank documents.  They released six, one of which (the 17 Feb one) I had previously seen.

Date Released on 25 June 2015
19/5/2015 Memo to Minister on draft consultation paper on LVR policy (PDF 818KB)
30/4/2015 Memo to Minister on estimated impact of changes to LVR policy (PDF 1.36MB)
24/4/2015 Memo to Minister on potential adjustments to LVR ratio policy (PDF 2.67MB)
21/4/2015 Memo to MFC on Proposed changes to the LVR policy (PDF 350KB)
2/4/2015 Memo to MFC on revisiting the case for regional targeting of marco-prudential policy (PDF 134KB)
17/2/2015 Memo to MFC on effectiveness of a tighter investor LVR limit (PDF 99KB)

We don’t have much context for this release.  In particular, we don’t know the scope of any OIA request the Bank may have been responding to, but if these papers are intended to reflect the analysis the Bank undertook in developing the proposed control on investor lending (and the Auckland-specific nature of the new policy), they are surprisingly short and weak.  Recall that the Bank is,  implicitly, saying the banks and borrowers are so risky and irresponsible that not one single (practical) cent can safely be lent by banks to Auckland residential property investors on LVRs over 70 per cent without jeopardising the soundness of the financial system.  That is a pretty ambitious claim.  It is not supported.

I have been critical of the Bank for not making a stronger case for its proposed controls.  The one comfort I suppose that we can take from these papers is that they are not hiding anything from us.  But if this is all there is – the extent of their engagement with the law, the economics, the stress tests, the uncertainty –  it is even less surprising that The Treasury was also not convinced that a compelling case had been made for the new controls.  Unfortunately, the Reserve Bank also continues to repeat to the Minister of Finance its claims that lending to investors is generally materially riskier than other housing lending.  An attendee at the LEANZ seminar the other night told the audience that he had gone through all the references the Bank has previously invoked in support of its claim, and had found that they simply did not say what the Bank claimed they were saying.  If that assessment is correct, it is pretty concerning, and should be so to the Board and the Minister –  charged with holding the Governor to account on our behalf.

A process issue struck me in reading the papers.  In discussing the possible new policy, the 21 April paper lists a possible timeline.  It suggests that a consultation period should end in “late June” and “Release final policy position and revised conditions of registration” in “mid-July”.  Allowing perhaps 10 working days to read, analyse, and reflect on submissions, write up recommendations to the Governor, write-up a response to submissions, and finalise the new conditions of registration themselves does not suggest that the Bank had in mind a very open process of consultation.  Actual timing slipped somewhat, as the consultative document was not released until early June, but we should hope that they take a little more than 10 working days to work through all the issues likely to be raised in submissions.

As I noted yesterday, the cause of serious scrutiny of the Governor’s proposals (and of open government more generally) would be advanced if the Bank were to publish on its website, as they are received or at least on the closing date, all the submissions they receive.  They are, after all, public, official, information.