The new Reserve Bank Board

The Minister of Finance yesterday afternoon finally announced the rest of the members of the new Reserve Bank Board that takes office, under its new authorising legislation, today. In my post earlier this week, I highlighted a number of weaknesses in the legislation around the (dis) qualifications of the Governor and other Board members. None of the appointments to the Board appear to be in breach of the Act, but several are questionable on various counts, and taken together (and one should think about the composition of the Board as a whole) the new Board represents a poor, and grossly inadequate, start to the new regime. It could have been a great opportunity for a really impressive fresh start for the governance of the Bank. Instead, the Orr-Robertson degrading of the Bank continues.

As one gets older, rose-tinted glasses about aspects of the past are a risk. I do recall a time when the Reserve Bank Board had some really impressive people on it (mostly credit to Roger Douglas). But the dominant story over the almost 90 years the Bank has existed hasn’t been of impressive people being appointed to non-executive roles on the Board. In making appointments, at least since the government took full ownership of the Bank in 1936, political debts have always been paid or political loyalties rewarded – at times, past, present, and future overtly political figures have been appointed (and I even found one member who’d been a Communist Party donor), and the general quality has ebbed and flowed. One member I’m aware of – whom I gather turned out to make a reasonable contribution – was appointed mostly to spite a then Governor who vehemently objected to an economist the Minister wanted to appoint. There have been a handful of people with relevant subject expertise, some people good at asking (awkward) questions, and the time-servers and middling sorts who populate the myriad of boards and committees governments have to fill.

But – and it is an important but – none of them ever mattered very much. From the late 30s to 1990 it was clear that if the Board was the governing authority of the Bank as an entity (“the Board was the Bank” was used to say), most everything that really mattered about what the Bank did was decided – quite properly under the then-legislation – by the Minister of Finance and/or the Cabinet. That included policy, implementation, and key personnel (Governor and Deputy Governor). No doubt there were plenty of things for the board to do in that era – administration, buildings, staff etc – but it wasn’t the stuff we set up the central bank for. And from 1990 to yesterday, the Board had little say over anything much (not even the pay and rations stuff) but established as an monitoring and accountability body almost exclusively. It wasn’t quite that narrow, in that a person could only be appointed or reappointed as Governor if recommended by the Board.

As the overhaul of the legislation got underway, more recently people could only be appointed to the MPC on the recommendation of the Board, but OIA documents show that when the MPC was established they did not recommend names to the Minister but presented a list and said to Robertson “you pick”. This was the same Board that had got together with the Governor and Minister and put in place a blackball on the appointment to non-executive positions of anyone with actual hard expertise in monetary policy.

What of the new legislation. There have already been attempts at spin.

Thus, we have this from the Minister of Finance

The Board’s remit does not cover monetary policy, which remains solely the role of the Monetary Policy Committee.

And it is certainly true that the Board members do not get to set the OCR or publish projections. But as the Bank now points out on its website. “collective duties of the Board” now include

  • reviewing the performance of the Monetary Policy Committee and its members.

And it is the Board that has to recommend a person to be appointed (or reappointed) as Governor, and has to recommend appointees for the Monetary Policy Committee. It also has the responsibility to recommend removal of these people if they are not adequately doing their jobs.

In the Bank’s Annual Report (sec 240) they are specifically required to include

(m) a statement as to whether, in the board’s opinion, the MPC and the members of the MPC have adequately discharged their respective responsibilities during the financial year (see section 99); and
(n) a description of how the board has assessed the matter under paragraph (m)

And that is just monetary policy. The Board also now has all the powers the Governor previously had on prudential regulatory matters (mostly banks, but including non-bank deposit-takers, insurers, payment system infrastructures), New Zealand’s physical currency, a large balance sheet. And there are a number of grey areas in the Act of matters which in my view really should be matters for the MPC, but seem to be matters for the Board. You will recall the big disputes a few years ago about the Governor’s ambitions to dramatically increase capital ratios: such things are now the responsibility of the Board. And recall that the whole point of the new Board model was to reduce the single-person risks inherent in the previous legislation (so don’t anyone think about running a “oh, none of this matters as the Governor runs things” response).

So lets look at the make-up of the Board.

Take the Governor first (and note the oddity of the new legislation where on paper the Governor is a totally dominant figure on monetary policy, but just another board member on the Bank’s other major policy/regulatory functions). With the best will in the world, no one would argue that Adrian Orr is a leading figure in either monetary policy or financial stability functions. With a really really impressive chief executive, the rest of the Board can matter a little less – but the best people need hard and informed questioning. All the signs suggest an undisciplined and petulant figure who just isn’t overly interested in the core responsibilities of the Bank – and that would be consistent with his record of speeches over his four years in office.

Then we have the chair, Neil Quigley, who was an economics academic and is now Vice-Chancellor of Waikato University. Quigley has been on the Board for more than a decade, has been chair since 2016 (and thus presumably bears the greatest responsibility for Orr, and what followed). But as I discussed yesterday in all those years on the Board there has been little sign of serious and hard challenge and scrutiny, and despite Quigley’s academic background there isn’t much sign these days of someone devoting a lot of time to keeping abreast of the literature on financial stability and regulation. How could he? Most would have thought a university vice-chancellor role in these difficult times would itself be at least a fulltime job. Quigley’s appointment appears to be a transitional one (to 30 June 2024), and his replacement would be a key opportunity for any new government taking office after next year’s election that was serious about restoring the authority, reputation etc of the Bank.

It is downhill from there with the rest of the Board. Taking them in alphabetical order

All laudable no doubt, but not a shred of a sign of suitability to be a board member of New Zealand’s prudential regulator or to be choosing appointees to the MPC and evaluating the performance of the MPC.

I’ve discussed Finlay previously. We can be relieved that his terms as NZ Post chair (owning Kiwibank and Kiwi Wealth) ended yesterday. He should never have been actively involved in Reserve Bank affairs while chairing the owner of a major bank. But that is now over, and we are left with someone who looks like a pretty generic professional director and accountant. Perhaps, and despite his past (what ethics does he display in having accepted the RB/NZ Post conflict), he could be a perfectly adequate director of yet another government body. But it isn’t evident there is any expertise or experience in monetary policy, prudential regulation, financial stability etc.

Higgins appears to be wholly and solely a diversity hire. Her background is all very interesting, perhaps even laudable, but…..this is the central bank and prudential regulatory agency, and there is not a shred of relevant background or qualifications – any more than a professor of Latin and university bureaucrat would typically have.

Paterson is another carryover from the old board. Perhaps she is just excellent (but remember all those questions we didn’t find in the Board minutes to now) but she is a pharmacist turned generic company director. There is a place for such people, perhaps even a couple on a central bank board, but subject matter expertise and energy on such matters seems less than evident.

Pepper seems to be the only appointee with recent practical exposure to financial markets. On paper he looks like he could be quite a reasonable appointment to the FMA Board (perhaps a swap with Professor Prasanna Gai who is on the FMA but has expertise and experience that would be very valuable on the Bank’s Board or MPC). But the Bank’s Board is more about financial institutions than about wholesale markets and it isn’t evident he has much knowledge about institutions, the sort of risks that threaten them, or about financial regulatory policy – let alone being particularly fit for evaluating MPC members.

And then there is that insurance company he recently became a director of. According to the Minister

Mr Pepper is a director at Ando Insurance Group Ltd, but that role is not expected to create a conflict of interest as Ando is a non-regulated company.

The problem is that when you look up that company it is described as almost 40 per cent owned by a foreign insurer which is regulated by the Reserve Bank, and Ando describes itself as writing its insurance business for that regulated company. I don’t know either the business or the law enough to know why Ando itself is not regulated by the Reserve Bank, but on what we do know the appointment, while lawful, seems pretty questionable, and not (especially after Finlay) a great way to start a shiny new Board and governance model. One wonders what Treasury made of it when they provided advice to the Minister on appointees. (Or, indeed, the other political parties when, as the law now requires, they were consulted.)

Raumati-Tu’ua (who seems to be a qualified accountant) is another of those generic professional directors. As I said earlier, there is a place for a couple of them on the Board, but there is no relevant subject matter expertise at all.

For the most part I am not suggesting that as individuals these people are unsuited to being on a mixed Board (although Higgins appears utterly unqualified, and Pepper questionable on ethical grounds), but what you end up with is a Board that is deeply unimpressive and really unfit for anything like the role the legislation envisages for the Board of the Reserve Bank. There is no one with any real expertise or authority in banking, no one with any real expertise on financial regulatory matters, no one who really seems fit (or ready) to be holding the MPC to account or making good choices about who should go on the MPC in future. And, perhaps a little surprisingly given the limited pool of expertise locally and the risks of too inward loking an approach, there is no one from abroad. As a group – however nice, and perhaps able they each are in their own fields – they simply aren’t up to what the job should entail, and that against the background on an inexperienced and underqualified senior management team. One can only imagine the Australian Prudential Regulatory Authority people reading of these appointments with some mix of despair and bewilderment while – condescendingly, but as they are prone to – suggesting that fortunately it doesn’t matter too much as APRA does the prudential supervision that really counts for New Zealand. That model – wind up and turn things over to APRA – was rejected (and rightly) by Michael Cullen almost 20 years ago, but his successor seems to be going for the worst of all worlds -a a bloated and expensive central bank of our own, led by people who do not warrant any great level of confidence in their individual or collective capabilities in the role they have taken up.

If there is a National/ACT government after the election it will have to make it a matter of priority to begin a far-reaching overhaul of the Reserve Bank (management and governance) to reverse the increasingly embarrassing spectacle of sustained institutional decline.

Meanwhile, of course, under the new law, the Minister of Finance was required to consult with other political parties on proposed appointees. It is a relatively unusual provision which Labour chose to put in the law, presumably intended to single their seriousness about a high quality Board that was broadly not too unacceptable across party lines (consistent with that, these appointees do not serve at will and can be removed only for cause – not including being ill-qualified in the first place). One wonders what National and ACT (in particular) said when the Minister consulted? Perhaps there were worse names on an original list. Perhaps the parties never bothered objecting, or perhaps they did object and Robertson just pushed on through anyway. Perhaps the relevant spokespeople could tell us?

I have lodged a series of OIA requests with the Minister, The Treasury, and the Reserve Bank to get a better insight on the process leading to those appointments, including the consultation with other parties.

22 thoughts on “The new Reserve Bank Board

  1. Hi Michael,

    If you could choose the board yourself. What skill mix would you look for you and who do you think would be able to fulfil the mix?

    Liked by 1 person

  2. Hi Michael,

    If you could choose the board yourself. What skill mix would you look for and who do you think would be able to fulfil the mix?


    • Interesting question. I don’t know too many names in banking but I’d be looking for someone who’d previously held very senior roles in a bank (head of risk, head of credit, CEO), someone with a strong background in insurance (.which Pepper seems no to have), a couple of economists (perhaps one more macro oriented, one more finance regulatory) and perhaps one or two top tier general CEOs/ directors, and perhaps one up and comer.

      A big constraint is likely to be pay. Govt boards typically do not pay well. But there is a real risk that if you pay peanuts you will get too many monkeys (esp when you have to deal with someone like Orr). Some really top notch people might do it as public service etc, but we shod pay properly for what a job well done shod demand/command.


    • Realistically, probably someone resident in Australia. Not only are the economies and financial systems similar but one has to be realistic about willingness to get on a plane to NZ say 10 times a year.


  3. You might just come to miss the old era, because If the goal of New Zealand’s Minister of Finance was to eviscerate the last vestiges of independence and credibility from the Reserve Bank of New Zealand then he finally achieved it with the appointment of this ‘new’ Board. As for the appointees – shame on them, for what can only be base avarice, in putting their names forward and receiving taxpayer funds when they are so demonstratively under qualified.

    Once again, of course, the opposition parties and the fourth estate acquiesce (through their lack of challenge) to this debasement of what was once an internationally well-regarded public institution…corruptio optimi pessima.

    Liked by 1 person

    • On your first para, yes but historically the fees have been so low it would have been hard to attract capable people at the price (also a serious obstacle to any possible overseas members).

      On your second, as an ill-educated peasant from a low-decile Akld school (that didn’t offer Latin) you do keep Google translate busy.

      But, yes, it is a far cry from 30 years ago.

      Liked by 2 people

      • …..’historically the fees have been so low’…..let’s see what they are now – I’d wager going forward they won’t be ‘so low’, and of course there will be the ‘establishment fees’ that are likely to have been charged, by some, in setting up this bread and circuses of governance.

        May I point you to Cicero’s Verrine Orations, a classic and a good starting point given the topic of this and your most recent post.


  4. This list seems to fulfil the ethnic and gender requirements of todays politics but what about intellectual and academic necessities ?
    There is a huge task in front of the Reserve Bank today to stabilise the NZD and as a corollary control inflation with irs partner interest rates.There is also substantial risk.
    NZ needs genuine economists with the integrity ability and purpose to pursue economic stability above all else.

    A Government fiddling with the PTA and appointing its own board does not fulfil this need!

    Liked by 1 person

  5. It’s what you’d expect from this government. To call them mediocre would be a disservice to mediocrity.

    Back in the 90s, top academics, including the odd Nobel Laureate, would regularly turn up and roost in the Economics Department. Those days look long gone…


    • Certainly of a piece with the combined (Orr, Quigley, Robertson) ban on experts serving as external MPC members, and the appointment of a marketing/accounting exec as the deputy chief executive responsible for monetary policy. Just dire.

      (Of course, what isn’t yet clear is whether the Nats will take a stand, or if they win next year care enough to insist on a different and much better future).

      The RB of the late 80s and early 90s was always a bit overrated reputationally, but what a contrast to now on the policy/analytics side of things.


  6. Their strategy is an old, tried and tested one. First you argue that the Act needs changing and in the process the Board is dis-established. Then you re-establish the new Board, retaining a few hold-overs from the old regime who are either: i) politically aligned to you already, ii) likely to end their term soon for one reason or another, or iii) not considered threatening in any way. That way it can look like there is some continuity. Then you can stack the Board with your new appointments, all on long tenures, all the while talking up their independence and their quality. Do this across enough of the Public domain and it really doesn’t matter if the opposition wins the next election as the entire bureaucracy will be aligned against them.

    Would this government stoop to this level?

    In a New York minute.

    Liked by 2 people

    • It will be a challenge for the Nats if they get in but the first thing they have to decide is whether they really care enough to want things to be different. If so, there will be options open to them. In the meantime, if they are at all serious they need to start speaking out on the Bank and making it clear that an Orr reappointment would be over their strong objections. At present tho , their finance spokesperson seems seriously underwhelming.

      Liked by 2 people

      • They need an old white guy in charge, amiright? That’s how a meritocracy is supposed to work!


      • Most likely white – aren’t they the majority in NZ (is Cook islands ‘white’?) and these days roughly fifty-fifty chance of being male. It depends on what you mean by “old”. The Queen says you are as old as you feel. The Rolling Stones used to think 30 was old but now they are 80 and still performing. It is an adjective implying past their best – physically that might mean mid-twenties but musicians (and some cheese and port) just keep improving. Being old doesn’t make you wise but wisdom is an attribute of age and a valuable attribute. Might be useful when in charge of the Reserve Bank?


  7. I was hoping for a position on the Board, as when friends and family gather round for a game of Monopoly, I’m usually the Banker.
    But gee, looking at the new Board members, I think I might be over-qualified.

    Liked by 1 person

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