Month: August 2025

Still waiting for a Governor

Michael Reddell Reserve Bank, Reserve Bank Board, Rodger Finlay

Today, 5 August, is five months since the shock resignation – or, as now seems much the most likely, engineered exit – of the then Governor of the Reserve Bank, who disappeared from office that very day, getting generously paid for several more weeks but not working until the official date his resignation became legally effective, 31 March. Since then we’ve heard not a word of explanation from him and (more importantly, since they are still public officials) have been deliberately, actively, repeatedly, and still to this day obstructed and mislead by the Reserve Bank Board, notably the chair Neil Quigley, enabled by the Minister of Finance, and implemented (in respect of OIAs) by the temporary Governor, Christian Hawkesby.

Applications for the position of Governor closed a couple of months ago, so I guess we must assume that the selection and recommendation process is now fairly well advanced. The Board established a Governor Search Committee

Being chaired by Rodger Finlay – who has no background in macroeconomics or regulatory policy, and who had a questionable start to his time with the Bank (still chairing the board of the company that owned the country’s fifth largest bank) – doesn’t inspire much confidence. And if Finlay appears like a decent general corporate governance type of person, recall that he has been deputy chair through a) the reappointment of Orr, b) the Board approving the Bank running spending levels last year far beyond what the Funding Agreement had envisaged or allowed, and c) (and so we learned yesterday) was part of the Board that allowed management to sign a new lease on Auckland offices last November, massively larger than the current office, with space for many more staff than they currently had, when i) the Bank was already spending more than their Funding Agreement had allowed, and ii) they (presumably) still had no real steer from the Minister of Finance as to what approved spending for 25/26 and beyond was going to be. [Oh, and he’s been party to the cover-up of the last five months.]

Quite a team he and Quigley must make. Not exactly a team to inspire any confidence in the wisdom of whoever they end up putting forward as a first nominee to the Minister of Finance, or a team that might assure a good potential Governor that he or she was going into a well-led governance structure. Responsibility for that is shared by those Board members and by the Minister of Finance who has continued to express confidence in Quigley (for reasons not comprehensible to anyone outside her bubble) and refused to proactively ensure vacancies were quickly filled by new able people.

We had a Governor resign once before. Don Brash announced his resignation and left office on 26 April 2002. Just under four months later, Alan Bollard was announced as the new Governor.

Defenders of the Board and Minister might point out that things are a little more complicated this time. By law, the Minister now has to consult with the other political parties in Parliament (in practice the Opposition parties, since the coalition parties will already have been involved through the Cabinet appointments process).

The law does not require the Minister to change her mind if the other parties (some or all) disagree (perhaps strongly) with a nomination, although the statutory provision would be empty if she did not pay at least some heed to concerns expressed. (There is no sign Grant Robertson did – and it was his new provision – when he went ahead and reappointed Orr, over objections from both ACT and National in late 2022, but if the provision is to have any meaning at all, you’d hope there would be some serious reflection on any objections, especially when an incumbent is not involved.)

However, if the paper work is a bit more time-consuming now than it was in 2002, bear in mind that the appointment of Bollard was accomplished in less than four months even though Michael Cullen had rejected the Board’s initial nomination.

By law (see above) the Minister and government can only appoint someone the Board recommends. But that does not mean that the Minister has to accept any particular recommendation. That isn’t the empty provision people sometimes suggest. There have only been three new Governor appointments since the legislative model came into effect (in 1990) and Michael Cullen recorded in his autobiography that he rejected the then Board’s nomination of Rod Carr (deputy and at the time acting Governor).

As was his perfect right to do. (The Board must have at least half-expected their nomination to be rejected as it was understood among senior management at the time that Helen Clark had made clear that she wasn’t going have any “Brash-clones” appointed.) I’ve long championed the much more conventional model in which the Minister gets to appoint their own preferred person as Governor directly (perhaps accompanied by scrutiny hearings by FEC before the person actually takes up the office).

But it was all done in less than four months, and it is now five months and counting since Orr left (and the Bank in 2002 was in nothing like the mess, or urgent need of new strong capable respected leadership that it is now). I hope the Minister is drumming her fingers and urging the Board to get on with it.

Quite who they might come up with remains a mystery, or whether the couple of new Board members this year might persuade their colleagues that whatever the Board has once seen in Orr he should be almost a benchmark antithesis of the sort of person who should be chosen.

I wrote a post a couple of months ago, shortly before applications closed, prompted by the advert for the job and what it suggested the Board might be after. As I have noted throughout, I don’t believe there is any obvious ideal candidate, and so inevitably compromises will have to be made (and in recruiting a person, the Board and Minister need then to have regard to the willingness and ability of the person to clean house and build a new and more capable second tier – we cannot for long be in a position where the deputy chief executive responsible for macroeconomics and monetary policy has (a) no background in the subject, and b) can’t intelligently comment on anything of substance other than from a script she has been given).

That said, straws in the wind aren’t terribly encouraging.

I’ve heard that a couple of very able applicants didn’t even get an interview (there is such an abundance of talent? Really?). And then there was media report (that I’d heard via markets people earlier) that a Bank of Canada Deputy Governor (they have many) was a strong possibility, perhaps even a frontrunner.

This would seem an ill-advised choice if it was really a direction the Board was considering taking. Gravelle seems to have no particular connections to New Zealand (other than a couple of conferences, one by Zoom), and comes from an organisation that – unlike the Reserve Bank of New Zealand – does not do banking (and non-banking) financial regulation and supervision, these days a big part of the Bank’s job. For all its undoubted analytical strengths, the Bank of Canada also has a quite different sort of monetary policy governance model (entirely internal) than New Zealand’s. And then there is the adverse selection issue: a person who was good enough to be a serious contender for Governor in his/her own country (G7 country and all that) would not be very likely to put themselves forward to be Governor of a much smaller, poorer, remote country’s central bank, a country with which they’ve had no particular ties. As a couple of people have put it to me, it is a bit reminiscent of the old imperial days – someone not quite up to being appointed Governor-General of Canada or Australia might still be handed down to New Zealand. And it is not as if parachuting in foreign appointees to top economic roles here has been a particular success story (see last two Treasury secretaries), nor in many ways was bringing back an expat after 15 years away to the Reserve Bank (even if Orr’s record makes Wheeler look less bad). Can we really have fallen so far that we can’t find a credible respected appointee at home?

Always possible I guess. Compelling choices certainly aren’t thick on the ground.

What of the temporary Governor, Christian Hawkesby? These were my comments a couple of months ago

Much of which I would repeat today. But unfortunately since early June we’ve seen not just that Hawkesby has been a part of the obstruction effort re Orr’s departure (and if he is working to Board direction the fact that he has not been willing/able to insist on a more open approach is a poor reflection on any claim he has to be thought a worthy occupant of the permanent role. And then of course there was that last sentence. We now know that not only did he repeatedly sit alongside Orr while he (Orr) mislead Parliament, but that Hawkesby himself misled them just three months ago. He proved unable to even pass that low bar I mentioned in June.

I ended that earlier post speculating on some possible sorts of names I hadn’t seen mentioned in any of the media articles (bearing in mind that the advert had talked of the importance of both financial markets knowledge and CEO experience)

Since Stobo is (a) an economist by training, b) has CEO experience, c) has financial markets expertise, and has been appointed to his current public sector role (chair of the FMA) by this government, and is a thoughtful and reflective person .you could see why he might be a strong contender if he wanted it (and was willing to give up his portfolio of directorships etc and media commentary). If one can’t have much confidence in the FMA, there’d definitely be worse people for the job.

But it is time to get on with it and get a new Governor in place. And then get on and refresh the Board, with a new chair to work with and oversee the Governor.

That 24 February meeting again

Michael Reddell Adrian Orr, bank capital requirements, Prudential regulation

After The Treasury released their file note of that 24 February meeting between the Reserve Bank, Treasury, and the Minister of Finance (full copy here) a few people got in touch directly about a couple of aspects of what was written there, and what I’d made of it.

The file note indicated at one point that in the middle of the Funding Agreement discussion “The Governor left the meeting”. A couple of charitable people (not typically Orr allies) suggested that perhaps I was overinterpreting things to suggest that he’d walked out. I think they were pretty readily convinced that this was a very unlikely interpretation (in a meeting of which the Minister of Finance had already said that it had been clear to her that “emotions were running high”).

Former academic and now consultant economist Martin Lally then sent me this rather neat piece. Some of the non-economists among you might roll your eyes and suggest ‘that’s economists for you”, but I thought it was a nice example of the use of the technique to help discipline thinking.

Seems like a great opportunity to apply Bayesian analysis. 

The hypothesis (H) is that Orr stormed out of this meeting.  Your background data concerns his type of behaviour on other occasions.  Suppose this alone leads you to the view that H has a 10% chance of being true.  This is likely to be too low.  The odds on H being true are then at least 1/9. 

The next piece of evidence is the anonymous information about Orr’s behaviour at the meeting.  I sense that you think this evidence would be much more likely to arise if H were true than if H were not true; maybe five times as likely?  So, the Likelihood ratio for this evidence is 5.  The odds on H being true now rise from 1/9 to 5/9. 

The next piece of evidence is the meeting at Treasury a few days before the meeting in question here, on the same funding issue, after which Quigley apologised on Orr’s behalf for Orr’s behaviour.  Since it was on the same contentious topic, this evidence seems much more likely to arise if H were true than if H were not true; maybe five times as likely.  So, the Likelihood ratio for this evidence is 5.  The odds on H being true now rise from 5/9 to 25/9. 

The last piece of evidence is the minutes of the meeting in question, which reveal that Orr left during discussion about the funding issue, which Orr had very strong feelings on.  If H were true, this evidence or something even more damning would be almost certain to arise because the minute taker would be most unlikely not to have recorded that Orr left.  Say a prob of 0.95.  If H were not true, the minutes could still have recorded him leaving at the time he did but in that case it would have to be due to quite extraordinary information he had just received that demanded his immediate departure from a discussion he would otherwise have strongly desired to be present for.  It could be news of his house burning down or a serious injury to a loved one.  These things happen but it would be extremely unlikely to have occurred in the 45 minute time slot in question.  So, if H were not true, the prob of his departure from the meeting at this time is close to zero.  Suppose events like his house burning down etc happen once every 6 months, so 1/180 chance of it happening on that day and, if on that day, 1/10 of it happening during the 45 minute duration of the meeting on that day, so 1/1,800 of it happening during the meeting, which is 0.0005.  So, the Likelihood ratio for this evidence is about 0.95/0.0005 = 1900.  The odds on H being true now rise from 25/9 to 47,500/9, so the prob that H is true is now 47,500/(47,500 + 9) = 0.9998, i.e., 99.98%. 

So, with all this evidence, it is virtually certain that Orr stormed out of the meeting. This nicely illustrates the power of Bayesian analysis.

A few other people got in touch about the earlier part of the meeting, on banking regulation and competition matters. This part of the meeting was attended by Reserve Bank Deputy Governor Christian Hawkesby, whose day job at the time was financial stability, supervisory and regulatory etc issues (and he left the meeting when his item ended, thus missing the – apparent – fireworks).

The relevant bit of the file note was this

It is pretty clear from that that the Minister of Finance wanted a review. Perhaps she didn’t say it directly, but it is the clear implication of what is recorded in those first two paragraphs, and Quigley clearly recognised it as such, noting (folllowing the Minister’s remarks) that he “was open to bringing forward such a review….and discussing further what a review could look like”.

Why raise this now? Because Hawkesby is currently the temporary Governor, and supposed in some circles to be keen on getting the permanent job. Even if he doesn’t want to be permanent Governor, he is the deputy chief executive of a major government agency and a statutory appointee to the Monetary Policy Committee. Those who got in touch earlier this week reminded me that a few months ago (8 May) Hawkesby had been asked at Parliament’s Finance and Expenditure Committee about this meeting. Radio New Zealand’s report is here.

The first part of Hawkesby’s remarks seem fine

But then FEC was told this

The meeting had been only two months previously, it had been only a 45 minute meeting (of which he was only there for half an hour or so), on matters he had direct responsibility for, and the meeting itself has to have stuck in his mind given the role it seems to have played, within days, in the Governor’s departure. What’s more, surely you’d normally expect that coming out of a meeting like that there’d have been some sort of file note (especially when his boss and the board chair had appeared to be singing from different song sheets) or even an email to his direct reports in that area, and if he was really in doubt as to what went on I guess he could have asked Treasury for their file note. And yet we are supposed to believe that whether or not the Minister had requested (or only strongly implied) that a review should be undertaken was “not something that I sort of generally get into”. It reads a lot like misleading Parliament – in much the same way Orr had done repeatedly, often with Hawkesby in the room.

To be clear, I’m sure he is quite correct that “the decision to do a capital review was the Reserve Bank’s”, but in much the same way that the Governor’s decision to resign was a “personal decision” – at one level it was, but he was clearly prevailed on, pressured to go. Under the law as it stands Willis couldn’t directly compel the Bank to undertake such a review, but it will have been the less bad choice for them (she could have changed the legislation or commissioned her own review for example). And it was also a time – the end of March when the final decision to do a capital setting review was announced – where it probably will have suited Quigley and Hawkesby not to have been difficult; Quigley wanted his medical school, and Hawkesby may well have wanted to be made permanent Governor. The review would not have happened when it did without the Minister’s lead.

(And, to be clear, I don’t think that is a problem. As I’ve noted repeatedly, I think the law should be changed so that big picture prudential policy choices are made by ministers, with the Bank acting as (a) expert advisers, and b) implementing agents. I don’t think the Minister’s involvement here is inappropriate – whatever one’s view of actual capital settings – but really senior officials should not be misleading Parliament. And when they do, and when they sit silent while their bosses mislead Parliament, they really should not be serious contenders for high and very powerful office. Misleading Parliament is supposed to be a serious matter, and if MPs seem to have given up bothering over much (except when it suits), the rest of us should still insist on higher standards of integrity.

It is, in addition, supposedly one of the Reserve Bank’s own values

But perhaps those are just words. The actions at the top certainly haven’t aligning with the words for some time.