Transparency: Bank of England vs RBNZ

Open government –  or the lack of it –  has been getting a bit of attention in recent weeks.  The previous National-led government was pretty poor in that area, and if anything there now seems to be a risk that the current government could be worse.  But at least there is some debate around the issues.  Former Cabinet minister, and now Speaker, Trevor Mallard, had one promising suggestion in an article this morning

“Eventually getting some websites going which contain most of that material, for example, Cabinet papers two months after they’ve been to Cabinet automatically up unless there’s a good reason not to, just that sort of stuff would mean you’d have a lot of access to, actually quite boring information, but access to what’s going on.”

Easy to suggest, of course, when you are no longer a minister.  I hope the new Speaker will be as keen on extending the provisions of an (overhauled) Official Information Act to cover Parliament itself.

The Reserve Bank is one of the bodies that likes to claim that it is highly transparent.    There are plenty of counter-examples –  and occasional examples that might suggest that progress is actually being made –  but I stumbled across an interesting contrast this week between our central bank and the Bank of England, the central bank of the United Kingdom.  Recall that the British public sector was notoriously secretive for a very long time, and our Official Information Act was enacted many years before the UK’s comparable legislation.

In its Financial Stability Report this week, the Reserve Bank released a high-level summary of the results of its latest stress tests on the four major banks.  What they released was interesting enough but there wasn’t much of it; 850 words and a couple of charts.  There was, for example, no information on individual banks –  despite a disclosure-focused system –  and no detail on housing mortgage losses –  despite the active regulatory and rhetorical focus on those risks for the last five years.

Earlier in the week, the Bank of England released its Financial Stability Report, and as part of that they released their latest stress test results.  Their release –  on the stress tests alone –  was 64 pages, with a great deal of detail, on the test scenarios themselves, on the overall results, and on the results for individual banks.   It even has an interesting annex on how markets’ view of banks square with the stress test results.

To be sure, the UK banks are typically more complex than the New Zealand banks (some, such as HSBC, are primarily global banks with big international exposures), and there are more of them (seven in this test) so we might not expect 64 pages of results here.  But we really should be entitled to more than the Reserve Bank is giving us.  There is no obvious (good) reason for withholding the material –  including that at an individual bank level.  Disclosure statements are actually already supposed to disclose banks’ risks, and  stress tests are just shocks designed to test the circumstances under which those risks turn bad.  And, in the end, it is banks (individually) that fail, or not, not “banking systems”.

Sure, there is probably some cost to pulling all the material together and presenting it nicely, but those costs will be trivial compared to the costs the banks face in doing the stress tests, or even than the Reserve Bank faces in conducting them and writing them up for senior management and/or the Board.  Accountability provisions and openness do have direct costs –  and, for that reason among others, aren’t typically popular with bureaucrats – but we put them in place for good reason.  With such large and powerful governments we are long past the days when we could safely accept an approach of “trust us, we know what we are doing”, all the more so when it involves agencies – such as the Reserve Bank –  with huge power concentrated in one person’s hands and little direct effective accountability (we can’t vote him out).

I could, of course, lodge an Official Information Act request .  If I did they would probably release some more aggregated material.  But I wouldn’t get very far, as the Bank continues to shelter –  with the protection of the Ombudsman –  behind the egregious (or, more accurately, egregiously abused) section 105(1) of the Reserve Bank Act.  When the Reserve Bank Act is reviewed, doing something about that provision needs to be on the action list.

If the British can manage this high degree of openness around banking sector stress tests –  only a few years after they had to grapple with actual bank failures – surely so can we.

8 thoughts on “Transparency: Bank of England vs RBNZ

  1. Information can be hidden by secrecy or in plain sight like hiding a tree in a forest. The asbestos claims that nearly sunk Lloyds of London hit many silent partners but the active partners avoided the syndicates at risk. Presumably the information was available but only the active partners knew where to look.

    If the RBNZ stress tests found a risk with a specific bank maybe it could be more easily hidden in a mass of data than a 850 word summary.

    Like

    • In the US and UK, they will use the specific stress test results to require remediation by the bank concerned (eg increasing capital, or whatever).

      There is nothing at all about individual banks in the 850 words. I doubt there is anything to hide, but the individual bank detailed results would still be enlightening, and help advance discussion/debate/risk assessment, incl by the ratings agencies.

      Like

  2. Whispers
    “The previous National-led government was pretty poor in that area, and if anything there now seems to be a risk that the current government could be worse”
    Say where that comes from – Say it out loud – Otherwise it is meaningless

    Comparisons
    It should be more appropriate to compare RBNZ disclosures of stress results to APRA disclosures of stress results and any differences, and any comparisons between levels of Tier 1 and Tier 2 capital of the same 4 banks between the two countries

    Like

    • Yes, I agree comparisons with apples-for-apples stress tests for the Aus parents/groups would be interesting. Of course, this was a post about disclosure (and lack of it) rather than about the substance of particular stress test results.

      I’m not sure the point you are makiing in your first comment. We see an obstructionist approach to answering PQs, the kerfuffle over the “wider coalition agreement”, we see the BIMs not yet released, and (trivially but nearer my specific interest) the Rennie report commissioned by the previous govt and kept secret by them has still not been released. Oh, and there is no clear sense as to whether, in office, they are actually serious about doing anything about the OIA,

      Like

      • I agree entirely with you on the level of secrecy. I hoped for a “drain the swamp” result from the September election and voted accordingly. Unfortunately the swamp drainer seems to have gone to ground.

        My whispers comment is a product of my reaction to the words used

        In a previous post I stated there appears to be an impermeable glad-wrap-biosphere over-hanging and surrounding Wellington wherein opinions or knowledge outside never penetrate inside the place – it has an immunity. Thus, I take it as a given that you are plugged into the place, and the corridors of power, that when you make an outright statement such as above there is substance to it rather than it being qualified as being “in your estimation, or assessment, or perception, or opinion, or view, or what you see”

        Like

      • The only secrecy that I can actually pin down that is of any significance that ended the government was mainly to do with John Key resigning only months prior to the UN resolution that condemned Israels actions in Palestine. The resolution taken up by NZ was a complete surprise and I would never have thought that a John Key led government would ever go against Israels wishes. But then he resigned. Other than that the National government has been very transparent ie easily read between the lines, as it has been very much a poll driven government with few if any right or left ideals. The Arab dealings was more bumbling accidents than actually wanting secrecy over the issue.

        Like

      • from Matthew Hooton’s column in last week’s NBR. The OIA was passed in 1982

        “while the muldoon regime is said to have administered the OIA well, the Lange government did so only adequately, the Bolger-Shipley government reluctantly, the Clark government disgracefully and the Key-English government abused it shamelessly.

        Hooton ended up v negative about the previous government, but he didn’t start out that way and is still “of the right”.

        There are many concrete examples: the Saudi sheep deal documents just being one of the more shameful.

        Like

  3. I don’t claim to be particular connected – or make any effort to be so – although obviously I’ve been around, and do follow politics pretty closely.

    In this case, apart from the specifics I was noting, i was drawing on (for example) the Dominion editorial yesterday, which i think I alluded to yesterday

    https://www.stuff.co.nz/national/politics/opinion/99327934/the-new-government-makes-a-bad-start-on-openness

    and Bryce Edwards’ new campaign

    https://eveningreport.nz/2017/11/27/bryce-edwards-political-roundup-join-the-campaign-for-open-government/

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s