Off the top of the Governor’s head

From a post a couple of weeks ago, just after the release of the Reserve Bank’s Financial Stability Report.

In a similar vein, I noted a story on Newsroom this morning, reporting the Governor’s appearance at the Finance and Expenditure Committee yesterday.  He was reported thus

But he told the select committee he would much rather the Reserve Bank, as banking regulator, could trust banks and borrowers to be prudent.

“I would love to not have to be active in that space. If banks had true long-term horizons, if the consumers were fully aware and myopia didn’t exist across borrowers, all the different foibles that people have, then you wouldn’t need the regulatory imposts.”

Talk about “nanny state” –  the Governor wishes he could trust us.  I wish we could trust him and his colleagues.

But, more specifically, the Governor here asserts again that banks are too short-term in their operations, that borrowers are myopic, and we need Reserve Bank intervention (he was talking of LVR and DTI restrictions) to save us from ourselves.  Par for the course, the Governor offered no evidence for his proposition (and there was none advanced in the FSR), it just seems to be some sort of new gubernatorial whim (as Graeme Wheeler came with the scarring experience of living through the US crisis, in this case Orr comes with an NZSF perspective –  neither grounded in specific  analysis of the New Zealand banking system).  I’ve lodged an OIA request this morning for any Reserve Bank analysis in support of these propositions.

To the credit of the Reserve Bank, they seem to have started responding to OIA requests more promptly.  I got the Bank’s response this morning.  Here is what it says:

On 10 May you made an Official Information request seeking: 

copies of any research, analysis or related material generated by, or for, the Reserve Bank suggesting that New Zealand banks had inappropriately short lending horizons, and New Zealand borrowers suffered from “myopia”. 

Under the provisions of OIA section 18(e), which allows refusal of a request where the information is not held, the Reserve Bank is refusing your request.

The Governor’s view as expressed in the reported comment was formed without recourse to specific material produced by, or for, the Reserve Bank.

So there was no analysis in the FSR supporting his claim, and nothing the Bank had done –  not even apparently in the previous five years – that supported his claim about the need for Reserve Bank interventions (LVRs, DTIs etc) constraining New Zealand banks’ lending, and New Zealand households’ access to credit.

He appears to have just made it up.  It was a whim, a prejudice, a line that sounded good as he said it…….and this is the basis on which the Governor makes policy (singlehandedly) and testifies to Parliament.  In a way, it isn’t that surprising, given the criticisms people like Ian Harrison and I have levelled at the quality of the analysis used to support their actual and proposed regulatory interventions, but to hear it direct from the Bank is still pretty telling.

 

 

One thought on “Off the top of the Governor’s head

  1. Sounds like a disturbing lack of professional curiosity. The time horizon of investors is important both to monetary policy and for financial supervision. Only enough, is not so important for the case for and against deposit insurance as they are based either on panic or on banks been far too calculating.

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