I wasn’t planning to write anything more today, but then I got an email from the Reserve Bank.
You’ll be aware that almost three months ago the Reserve Bank released a consultative document, in which the Governor proposed to massively increase the amount of equity capital banks have to have just to keep on doing the business they are doing now.
As this was, apparently, the culmination of a multi-year review (in fact, the final numbers seem to have been very much a last-minute affair) you might have supposed that a serious central bank would have all its arguments straight and evidence (or at least sustained reasoning, engaging alternative perspectives) at hand in accessible form to support all their claims. They’d probably have anticipated all the plausible area of disagreement or challenge, and had good responses readily to hand.
Whether they supposed, for some reason, that everyone would embrace their schemes with open arms and uncritical spirit, or what, actual experience has been anything but that. When they finally responded to OIAs and released the background papers, it turned out that one of them had only been written several weeks after the consultation paper was released. And in his speech a couple of weeks ago, the Deputy Governor was promising that they would soon publish an Analytical Note explaining their estimates of the likely impact on interest rates (which still hasn’t seen the light of day).
At the Monetary Policy Statement in February, there was a considerable attention on the proposed capital changes. In fact, the Bank even proactively included a box in the text (page 35). There were various claims, some numerical and some not. These were a couple of examples
The Bank expects that the spread of banks’ lending rates to the rates at which they borrow will settle in the range of around 20 to 40 basis points higher as a result of the proposed changes, although the exact effect is uncertain.
Higher bank capital requirements could also improve the government’s fiscal position. A higher share of bank equity funding would likely increase tax revenue from the banking sector since debt funding is tax-deductible while equity funding is not.
There were lots of questions at the Governor’s press conference as well, including his claim (not made in the text) that the Bank’s proposed new capital ratios would be “well within the range of norms” seen in other countries.
That was all very interesting, but I wanted to know a bit more, and assumed they would simply have material to hand to support their claims. It would, you’d have thought, have been in their interests to do so – after all, they obviously believe in what they are proposing, and would presumably want to carry us with them, supported by robust evidence and analysis. Or so you’d have thought.
And so I lodged a fairly simple Official Information Act request, for the material supporting those claims. That was on 13 February. This afternoon – the day before the last date by when a response was due – I got this letter.
In which they take to themselves a whole another 20 working days. Not because whatever they have needs to be collated or compiled, but allegedly because of “ongoing consultations”. One can only assume that is a shorthand for “there wasn’t much, if anything, there, but give us time and we’ll see what we can drum up”.
It is both so ludicrous and so telling that I’m not going to waste the time of the Ombudsman’s office complaining. I’ll just let it stand – a powerful public figure makes claims in support of a far-reaching proposal on which he is prosecutor, judge, and jury – and can’t, or won’t, produce any evidence or analysis to support his specific claims. Sadly, it isn’t the first time.
If you want sceptical analysis and argument:
- Ian Harrison’s substantive document, “The 30 billion dollar whim” is here, and
- my succession of posts on unanswered questions and unconvincing analysis are here.
As for the Governor, he seems to have time to play tree gods, and for spending other people’s money on Maori cultural advice (recall, that this was going to improve the quality of monetary policy and financial regulatory policy decisions), just not for the serious stuff.
The Bank is at growing risk of becoming a profoundly unserious organisation, but one whose whims have serious consequences for the rest of us.
It isn’t good enough. The Bank’s board is charged with protecting us from Governors not doing their job properly. It is about time they took some responsibility.