Reserve Bank Board

Avoiding scrutiny

Michael Reddell MPC, Reserve Bank Board

Regular readers will recall that I have, intermittently, been on the trail of the approach taken to the selection (and rejection) of external MPC members when the current crop were first appointed in 2019. I have been pursuing the matter since a highly credible person who was interested in being considered for appointment told me that (a) the Bank’s search company had informed my interlocutor that they would not be considered because they had active research expertise in areas around macroeconomics, and (b) having been somewhat puzzled by this response they had personally checked this understanding with the chair of the Reserve Bank’s Board, Neil Quigley, who had confirmed that was the policy. (The person concerned has never challenged my understanding of those conversations and has reiterated concerns over the years). OIAed documents from the Minister of Finance in mid-2019 confirmed that that approach had also been The Treasury’s understanding at the time (Treasury having responsibility for the ministerial/Cabinet side of the process); indeed that the Minister himself had endorsed/agreed to the ban.

I’m not going to repeat the entire subsequent chain. Everyone believed there had been such a blackball in place (it was even in an OIAed contemporaneous summary of a Board meeting discussion), and that included now-former senior central bankers (eg John McDermott) and the former economic adviser to Grant Robertson. These people may or may not have agreed with the ban, which the Minister himself and the Bank had defended on record in comments to media, but there was no doubt it had been there.

But then last year Quigley told Treasury that there had never been a restriction and Treasury - despite a bit of scepticism from a couple of senior officials – put out an official comment stating that there had never been a ban, and that the particular 2019 document from Treasury to the Minister was all a misunderstanding by another fairly senior Treasury figure (who had - conveniently - now left The Treasury, and whom they appeared never to have checked their new view with). More recently, a former Reserve Bank Board member - who had also been a member of the Board’s selection sub-committee in 2018 – confirmed to the Herald that there had been a ban of the sort generally understood (although his comments suggested Quigley may have conflated in his mind - years on – two quite separate sets of discussions).

The renewed interest last year prompted me to go back and check the OIA response the Reserve Bank itself had provided me in 2019 about the selection process for MPC members.  They had then provided a lot of useful material, but it also became clear that they had chosen to exclude - and not to identify for withholding under specific OIA grounds - all dealings between the Board and management on the one hand and the Board’s search company (Ichor) on the other, even though it was pretty clear that any and all such material had been within the scope of the initial request (“all material relating to the Board’s selection and recommendation of potential MPC members”). This was pretty egregious conduct by the Bank: it is one thing to identify that things have been withheld, and to provide specific grounds, and another to just ignore a whole class of material and never bother mentioning it. 

Anyway, I decided to lodge a new OIA, including explicitly highlighting that the material requesting should already have been covered by the 2019 request. My request (from 7 September) was as follows for:

When the Bank’s response finally came back they explicitly identified 26 documents (all of which should have been covered by the 2019 request), and had explicitly evaluated each of them against the criteria in the Act, concluding that 17 could be released in full, 9 in part (mostly it appeared withholding names on privacy grounds, which - per my request - is just fine), and identifying no documents in scope that would be withheld altogether.

But, nonetheless, they were not going to send me the information, and instead wanted to charge me $786.60, citing “the amount of time required to process your request and the frequency of requests from you over the last three months”.

I was briefly tempted. I have had run-ins with the Reserve Bank over proposed charges previously (some years ago). Almost always in the cases I’m aware of (my own and some other people) their attempts to charge have been, pretty clearly, straight-out obstructionism, when the Bank would really prefer people did not see the documents they had no grounds to withhold.

In this case, the Bank told me it had taken 10 hours to process the request. At just over a day of one person’s time that doesn’t seem particularly unusual – or out of step with requests I and others have previously lodged with them – and there was never an attempt to invoke a common agency line (often used to justify extensions) about needing to search a particularly large or ill-defined body of material (this was a specific request about one search firm on one project in one few-month period, so it must have been very easy to quickly find anything in scope, and it was all several years old). Moreover, they had made no attempt to reach out to narrow down the scope of the request or to suggest ways which might limit the risk of charging - the sort of good faith steps they are required to do, if acting lawfully and in good faith.

Had I made a few requests in the previous few months? Yes, I had, including on matters around MPC appointments, and on the Reserve Bank’s puzzling treatment of fiscal policy issues. They were relevant issues to the scrutiny of a very powerful, but underperforming - and not straight with the public - public agency, whose Board chair had already pretty clearly been shown to have actively misled Treasury and, in turn, the public. (Oh, and one was a request for a specific 2016 document, that was about two pages long and not itself contentious or on matters of policy, for which I gave them the title, the author, the date, and the document number in their document management system - I already had a copy but wanted to be free to use it with another audience.)

I’ve been sitting on the Bank’s response for a couple of months - other stuff demanding my time and attention - not quite sure what to do. I’d be astonished if the Ombudsman did not uphold an appeal against the Bank’s attempt to charge for this request – but that might take two years – especially given that the material should have been included in a response to a request that the Bank had responded to (otherwise) appropriately in 2019, and is on a matter of significant interest to those attempting to monitor and hold the Bank to account (it was after all prompted ultimately by Quigley’s and Treasury’s egregious attempts to rewrite history - and if Quigley really was, after all, telling the truth, these documents should if released support his position: almost certainly they do not).

Just briefly, why do I say that they almost certainly do not? Among other things because in the material the Bank released to me in 2019 there was this email that I’ve included in previous posts on the MPC appointments issue (Mike Hannah then being the Secretary to the Board)

That said, since I have not lodged any OIA requests with the Bank for more than three months now, I am pondering resubmitting my request (it was, after all, them who cited as an excuse for attempting to charge a concentration of requests in a three-month period).

Alternatively, here is the full Bank response

RB OIA response re request for information on Ichor and the 2019 appointment of external MPC members

Anyone else could feel free to submit the request themselves (the exact words are in the document, as is the complete list of documents they had identified and already reviewed, so there will be almost zero marginal cost for them to handle such a request, and no legal basis for attempting to charge.   If anyone else does choose to make the request, I’d be happy to hear/see the response in due course (mhreddell@gmail.com).   

[UPDATE: The Bank’s contact email for OIA requests is rbnz-info@rbnz.govt.nz ]

As it is the clock is now ticking on the terms of two of the MPC members which expire (finally, with no possibility of reappointment) in the next few months.   The documents released last year suggest there is no longer a bar on specialist expertise in external MPC appointments, although the suspicion remains that Orr and Quigley (and the tame underqualified Board) will instead have imposed a bar on anyone who might make life at all awkward for the Governor.   To date, the new Minister of Finance has given no hint of reopening the application or selection process –  despite it all having occurred under the previous government and its appointees – and I guess only time will tell whether she has been willing to go along with such a bar, which might be less visibly egregious, but no better in terms of building a strong and open MPC, the need for which is only made more evident by the deep failures of the current MPC under Orr in the almost five years since the current externals were appointed.

What should be done about the Reserve Bank?

Michael Reddell Adrian Orr, MPC, Reserve Bank Act reforms, Reserve Bank Board

Monday’s post was on the important place effective accountability must have when government agencies are given great discretionary power which – as is in the nature of any human institutions – they will at times exercise poorly. My particular focus is on the Reserve Bank, both because it is what I know best, because it exercises a great deal of discretionary power affecting us all, and because in recent times it has done very poorly in multiple dimensions (be it bloated staffing, demonstrated loss of focus, massive financial losses, barefaced lies, or – most obvious to the public – core inflation persistently well above target).

What has happened under the current (outgoing) government is now an unfortunate series of bygones. What has happened, happened, and some combination of Orr, Robertson, Quigley (and lesser lights including MPC members and the Secretary to the Treasury) bear responsibility. Not one of them emerges with any credit as regards their Reserve Bank roles and responsibilities.

But in a couple of weeks we will have a new government, and almost certainly Nicola Willis will be Minister of Finance. The focus of this post is on what I think she and the new government should do, if they are at all serious about a much better, and better governed and run, institution in future. It builds on a post I wrote in mid 2022 after someone had sought some advice on a couple of specific points.

Thus far, we have heard very little from National on what plans they might have for the Reserve Bank. When they were consulted, as the law now requires, they opposed Orr’s reappointment (although on process grounds – wanting to make a permanent appointment after the election, something the legislation precluded – rather than explicitly substantive ones). And anyone who has watched FEC hearings over the past 18 months will have seen the somewhat testy relationship between Orr and Willis (responsibility for which clearly rests with Orr, the public servant, who in addition to his tone – dismissive and clearly uninterested in scrutiny – has at least once just lied or actively and deliberately misled in answer to one of Willis’s perfectly reasonable questions). In the Stuff finance debate last week I noticed that when invited to do so Willis avoided stating that she had confidence in Orr, but she has on a couple of occasions said that she will not seek to sack him, stating that she and he are both “professionals” (a description that, given Orr’s record, seems generous to say the least).

Even if she had wanted to, it would not be easy to sack Orr.

From last year’s post, these are the statutory grounds for removal

Note too that his current term in office started only in March this year, and the more egregious policy failures occurred in the previous term (and thus probably not grounds for removal now). I have my own list of clear failures even since March – no serious speeches, no serious scrutiny, no serious research, actively misleading Parliament, and so on – such that it would be much better if Orr were gone but seeking to remove him using these provisions would not be seriously viable, including because any attempt to remove him could result in judicial review proceedings, leaving huge market uncertainty for weeks or months.

Were the Governor an honourable figure he would now give six months notice, recognising that the incoming parties do not have confidence in him and that – whatever his own view of his own merits – it actually matters that the head of an agency wielding so much discretionary power should have cross-party confidence and respect (which does NOT mean agreeing with absolutely everything someone does in office).

Historically (and even when I wrote that post 18 months ago) I would have defended fairly staunchly the idea that incoming governments should not simply be able to replace the central bank Governor. The basic idea behind long terms for central bank Governors was so that governments couldn’t put their hand on the scales and influence monetary policy by threat of dismissal. But many of those conceptions date from the days before the modern conception of the government itself setting an inflation target and the central bank being primarily an agency implementing policy in pursuit of that objective. Even when the Reserve Bank of New Zealand legislation was first overhauled in 1989 the conception was that Policy Targets Agreements should be set and unchanged for five year terms, beyond any single electoral term. That (legislated) conception never survived the first election after the Act was passed, but these days the legislation is quite clear that the Minister of Finance can reset the inflation target any time s/he chooses (there are some consultation requirements). If the government can reset the target any time they choose, then it isn’t obvious that they shouldn’t be able to replace the key decision-makers easily (when the key decisionmakers – specifically the Governor – have influence, for good and ill, much more broadly than just around pursuit of the inflation target).

(There is a parallel issue around the question of whether we should move to the Australian system where heads of government departments can be replaced more easily, but here I’m focused only on the Reserve Bank, which exercises a great deal of discretionary policy power, and isn’t just an advice or implementation entity.)

By law they can’t make such changes at present. They could, of course, amend the law, but to do so in a way narrowly focused on Orr (ie an amendment deeming the appointment of the current Governor as at the passage of this amendment to be terminated with effect six months from the date of the Royal Assent) would smack rather of a bill of attainder. Governors have been ousted this way in other countries, but I don’t think it is a path we should go down.

Some will also argue that Orr should simply be bought out. If the government was seriously willing to do that – and pay the headline price of having written a multi-million-dollar cheque to (as it would be put) “reward failure” – I wouldn’t object, but it isn’t an option I’d champion either. (Apart from anything else, a stubborn incumbent could always refuse an offer, and once this option was opened up there really is no going back.)

So the starting point – which Willis has probably recognised – is that unless Orr offers to go they are stuck with him for the time being.

The same probably goes for the MPC members and the members of the Bank’s Board. The incoming Minister of Finance could, however, remove the chair of the Board from his chairmanship (this is not subject to a “just cause” test). The current chair’s Board term expires on 30 June next year, and it might not be thought worth doing anything about him now, except that he is on record as having actively misled Treasury (and through them the public) about the Board’s previous ban on experts being appointed to the MPC, and he has been responsible for (not) holding the Governor to account for the Bank’s failures in recent years. Removing Quigley would be one possible mark of seriousness by a new government, and a clear signal to management and Board that a new government wanted things to be different in future.

The current Reserve Bank Board was appointed entirely by Grant Robertson when the new legislation came into effect last year. It was clearly appointed more with diversity considerations in mind than with a focus on central banking excellence, and several members were caught up in conflict of interest issues. The appointments were for staggered terms but – Quigley aside – the first set of vacancies don’t arise until mid 2025. It would seem not unreasonable for a new Minister to invite at least some of the hacks and token appointees to resign.

There are three external appointees to the Monetary Policy Committee. None has covered themselves in any glory or represented an adornment to the Committee or monetary policymaking in New Zealand. All three have (final) terms that expire in the next 18 months, two (Harris and Saunders) in the first half of next year. This is perhaps the easiest opportunity open to a new Minister to begin to reshape the institution, at least on the monetary policy side, because appointments simply have to be made in the next few months. As I noted in a post a couple of weeks ago, OIAed documents show that the current Board’s process for recommending replacements is already largely completed, with the intention that once a new government is sworn in they will wheel up a list of recommendations. If the new government is at all serious about change, this should be treated as unacceptable, and the new Minister should tell the Board to rip up the work done so far and start from scratch, having outlined her priorities for the sort of people she would want on the MPC (eg expert, open, willing and able to challenge Orr etc). It would also be an opportunity for her to revisit the MPC charter, ideally to make it clear that individual MPC members are expected to be accountable for, and to explain, their individual views and analysis. Were she interested in change, it is likely that the pool of potentially suitable applicants might be rather different than those who might have applied – perhaps to be rejected as uncomfortable for Orr at the pre-screening – under the previous regime.

The Reserve Bank operates under a (flawed) statutory model where a Funding Agreement with the Minister governs their spending for, in principle, five years at a time. The current Agreement – recently amended (generously) with no serious scrutiny, including none at all by Parliament – runs to June 2025. The incoming government parties have been strong on the need to cut public spending by public agencies on things that do not face the public. They need to be signalling to the Reserve Bank that they are not exempt from that approach, and if the current Funding Agreement cannot be changed it should be made clear to the Board and management that there will be much lower levels of funding from July 2025. Indulging the Governor’s personal ideological whims or inclinations to corporate bloat are not legitimate uses of public money.

If she is serious about change, the incoming Minister also shouldn’t lose the opportunity to deploy weaker but symbolic tools at her disposal. Letters of expectation to the Governor/MPC and the Board can make clear the direction a new government is looking for, as can the Minister’s comments on the Bank’s proposed Statement of Intent. Treasury now has a more-formal role in monitoring the Bank’s performance, and the Minister should make clear to Treasury that she expects serious, vigorous and rigorous, review.

All this assumes the incoming Minister is serious about a leaner, better, more-excellent and focused Reserve Bank. If she is, and is willing to use the tools and appointments at her disposal, she can put a lot of pressure on Orr. If that were to lead to him concluding that it wasn’t really worth sticking around for another 4.5 years that would be a good outcome. But at worst, he would be somewhat more tightly constrained.

I haven’t so far touched on the two specific promises National have made. The first is to revise the legislation (and Remit) to revert to a single statutory focus for monetary policy on price stability. I don’t really support this change – the reason we have discretionary monetary policy is for macro stabilisation subject to keeping inflation in check – but I’m not going to strongly oppose it either. The 2019 change made no material difference to policy – mistakes were ones of forecasting (and perhaps limited interest and inattention thrown in) – and neither would reversing it. Both are matters of product differentiation in the political market rather than a point of policy substance. The proposed change back risks being a substitute for focusing on the things that might make for an excellent central bank – as it was with Robertson. I hope not.

The other specific promise has been of an independent expert review of the Bank’s Covid-era policymaking. It isn’t that I’m opposed to it – and there is no doubt the Bank’s own self-review last year was pretty once-over-lightly and self-exonerating – but I’m also not quite sure what the point is, other than being seen to have done it. Action, and a reorientation of the institution and people, needs to start now, not months down the track when some independent reviewer might have reported (and everyone recognises that who is chosen to do the review will largely pre-determine the thrust of the resulting report). It isn’t impossible that some useful suggestions might come out of such a report, but it doesn’t seem as though it should be a top priority, unless appearance of action/interest is more important than actual change. I hope that isn’t so either.

What of the longer term, including things that might require more-complex legislative change?

I think there are number worth considering, including:

  • how the MPC itself is configured.   I strongly favour a model –  as in the UK, the US, and Sweden –  in which all MPC members are expected to be individually accountable for their views, and should be expected routinely to record votes (and from time to time make speeches, give interviews, appear before FEC).  I’m less convinced now than I once was that the part-time externals model can work excellently in the long haul, even with a different – much more open, much more analytically-leading – Governor.  One problem is the time commitment, which falls betwixt and between. External MPC members have been being paid for about 50 days a year, which works just fine for people who are retired or semi-retired, but doesn’t really encourage excellent people in the prime of life to put themselves forward (I’m not sure how even university academics – with a fulltime job –  can devote 50 days to the role).  In the US and Sweden all MPC members are fulltime appointments, and in the UK while the appointments are half-time they seem to be paid at a rate that would enable, say, an academic to live on the appointment, perhaps supplemented with some other part-time (non-conflicted roles).    I also used to put more weight on the idea of a majority of externals, which I now think is a less tenable option than I once did.  External members can and should act as something of a check on and challenge to management, but it will always be even more important to have the core institution functioning excellently (at senior and junior levels).  We should not have a central bank deputy chief executive responsible for matters macroeconomic who simply has no expertise and experience, and is unsuited to be on any professional MPC.
  • I would also favour (and long have favoured) moving away from the current model in which the Board controls which names go to the Minister of Finance for MPC and Governor appointments.  It is a fundamentally anti-democratic system (in a way with no redeeming merits), and out of step with the way things are done in most countries.  We don’t want partisan hacks appointed to these roles, but the Board – itself appointed by (past) ministers –  is little or no protection, and Board members in our system have mostly had little or no relevant expertise.  Appointments should be made by the Minister –  in the case of the Governor, perhaps with Opposition consultation – and public/political scrutiny should be the protection we look to.  I would also favour all appointees to key central bank roles have FEC scrutiny – NOT confirmation- hearings before taking up their roles (as is done in the UK).
  • I would also favour (as I argued here a few years ago [UPDATE eg in this post]) looking again at splitting the Reserve Bank, along Australian lines, such that we would have a central bank with responsibility for monetary policy and macro matters and a prudential regulatory agency responsible for the (now extensive) supervisory functions.  They are two very different roles, requiring different sets of skills from key senior managers and governance and decision-making bodies.  Accountability would also be a little clearer if each institution was responsible for exercising discretion in a narrower range of area.  Quite obviously, the two institutions would need to work closely together in some (limited) areas, but that is no different than (say) the expectation that the Reserve Bank and Treasury work effectively together in some areas.  (Reform in this area might also have the incidental advantage of disestabishing the current Governor’s job).  Reform along these lines would leave two institutions with two boards each responsible for policymaking (and everything else) the institutions had statutory responsibility for.  The current vogue globally has been for something like having a Board and an MPC in a single institution, the former monitoring the latter.  But the New Zealand experience in recent years is illustrative of just how flawed such a model is in practice: not only is the Board still within the same institution (thus all the incentives are against tough challenge and scrutiny) but typically Reserve Bank Board members have no relevant expertise to evaluate macro policy performance or key appointments in that area).  Monitoring and review matter but if they are to be done well they will rarely be done within the same institution with (as here) the chair of the MPC (Orr) sitting on the monitoring board.  The new Board’s first Annual Report last week illustrates just how lacking the current system is in practice, and although a new minister might appoint better people, we should be looking to a more resilient structure.

As I said at the start of this post we – public, voters, RB watchers – really don’t have much sense of what National or Willis might be thinking as regards the Reserve Bank. I tend to be a bit sceptical that they care much, but would really like to be proved wrong. There are significant opportunities for change, which could give us a leaner, better, much more respected, central bank. It is unfortunate that these matters need to be revisited so soon after the legislative reforms put in place by the previous government, but they do – we need better people soon, but also need some further legislative change.

UPDATE: A conversation this afternoon reminded me of the other possible option for getting Orr out of the Reserve Bank role: finding him another job. There might not be many suitable jobs the new government would want someone like Orr in, but I have previously suggested that something like High Commissioner to the Cook Islands might be one (having regard to his part Cooks ancestry, and apparent active involvement in some Pacific causes). More creative people than me may have other (practical) suggestions.

Accountability

Michael Reddell LSAP, Monetary policy, MPC, Reserve Bank Board

On Saturday dozens of candidates for the governing Labour Party stood for election to Parliament. The aim was to form (at least a big part of) the next government. They didn’t succeed. People will debate for decades precisely what motivated the public as a whole to vote as we did, but having governed for the last three years, they (Labour) lost. It is perhaps the key feature of our democratic system, perhaps especially in New Zealand with so few other checks and balances. You (and your party) wield great power, and if we the public aren’t satisfied – think you’ve done poorly, think another lot might be better, or simply wake up grumpy on election day – you are out. It is your (and your party’s) job to convince us to give you another go. If you don’t convince us you are out (and typically when a party loses power a satisfying number of individuals – even if rarely Cabinet ministers – actually lose their job (as MP) altogether). And if you are a disappointed Labour voter this morning, the beauty of the system is that no doubt your turn will come again. It is accountability – sometimes crude, rough and ready, perhaps even (by some standards) unfair or wrong – but the threat and risk is real, and the job holders keep it constantly in mind.

Many other people in the public employ also wield considerable amounts of power. In some cases, that power is quite tightly constrained and often (for example) there are appeal authorities. If a benefit clerk denies you a benefit you are clearly legally entitled to you will probably end up getting it, and if the clerk’s mistake is severe or repeated often enough they might lose their job. Less so at more exalted levels. When, for example, the wrong person is put in prison for decades typically no one responsible pays a price. When the Public Service Commissioner engages in repeated blatant attempts to mislead to protect one of his own, it seems that no pays a price.

And then there are central banks.

Every few months I do a book review for the house journal of central bankers, Central Banking magazine. They are often fairly obscure books that I otherwise wouldn’t come across or wouldn’t spend my own money on (at academic publishing prices). A few months back I reviewed Inflation Targeting and Central Banks: Institutional Set-ups and Monetary Policy Effectiveness (hardback yours from Amazon at a mere US$170 – yes, there is a cheaper paperback if anyone is really interested), by a mid-career economist at the Polish central bank, in turn based on her fairly recent PhD thesis. The focus isn’t on the question of what difference inflation targeting makes but on what institutional details, which differ across inflation-targeting central banks, seem to make a difference. Sadly for the author – these things happen – her thesis was finished before the outbreak of inflation in much of the advanced world in the last 2-3 years.

At the core of the book is a set of painstakingly-compiled indexes on various aspects of inflation-targeting central banks which might be thought to be relevant to how those central banks might perform in managing inflation. There are ones for independence, ones for transparency, and so on, but the one that stuck with me months on was the one for accountability. Accountability used to be thought of as an absolutely critical element – the quid pro quo – for the operational independence that so many countries have given to central banks in the last few decades. With great power goes great responsibility, and ideas like that. The Reserve Bank itself was very fond on that sort of rhetoric. In fact, there used to be a substantive article on that topic by me on their website, in which I waxed eloquent on the topic (after it was toned down when my original version upset the Bank’s then Board by suggesting that for all the importance of accountability it was more difficult in practice than in theory). At a more casual level my favourite example has always been a radio interview then-Governor Don Brash did in 2003, the transcript of which the Bank chose to publish, in which there is a snippet that runs as follows:

Brash: ….we were concerned……we were running risk of inflation coming in above 2 per cent which is the top of our target

Interviewer: And then you’d lose your job?

Brash: Exactly right.

I was working overseas at the time, and can only assume my colleagues gulped when they saw it put so unequivocally. But it wasn’t inconsistent with a meeting the handful of senior monetary policy advisers had with Don in one of his first days in office. He eyed us up – chief economist, deputy chief economist, and manager responsible for monetary policy advice – and said (words to the effect of) “you know we are going to introduce a new law in which if inflation is away from target I can lose my job. Just be sure to realise gentlemen that if I go, you are going too.” Not ever taken – at least by me – as a threat, but as a simple statement of the then-prevalent idea (crucial in the public sector reforms being done at the time) that operational independence and authority went hand in hand with serious personal responsibility and potential personal consequences. It was part of the logic of having a single decision-maker system (an element of the New Zealand system that no one chose to follow and – in one of Labour’s better reforms in recent years – was finally replaced here_.

But that was then.

By contrast, these are the components of the Accountability sub-index in the recent book I mentioned

There is nothing very idiosyncratic about the book or the work in it; indeed, she seeks to be guided by the literature and current conventional understanding. And if you look down that list of items – which is the sort of stuff central bankers often now seem to have in mind when they ever mention “accountability – you’ll quickly realise that there is really a heavy emphasis on transparency (a good thing in itself of course) and almost none of them on any sort of accountability that involves real consequences for individuals, anyone paying any sort of price. The only one of these items that represents anything like that sort of accountability is item 6.7 but even there the provision is about whether Governors/MPC members can be dismissed for neglecting their work (not turning up to meetings etc), not for actual performance in the job.

But if there are no personal consequences for failure and inadequate performance, why would we hand over all this power? I’ve written here before about former Bank of England Deputy Governor Paul Tucker’s book Unelected Power – which ranges much wider than just central banks – where his first criterion for whether a function should be delegated to people voters can’t themselves toss out (eg central bankers) is whether the goal – what is expecting from the delegatees – can be sufficiently specified that we know whether outcomes are in line with what was sought. If there is no such clear advance specification either there will be no effective accountability or such accountability will at best be rather arbitrary.

As it happens, almost no one believes the over-simplified accountability expressed in that 1993 Brash quote above makes sense, even if expressed in core inflation terms (I don’t think most people involved really did even in 1993 – although there was a brief period of hubris where it all seemed surprisingly easy – and certainly as soon as inflation went above the target range in 1995 there was some hasty rearticulation of that sense).

But if we have handed over all this power – and central bank monetary policy decisions, good ones and bad, have huge ramifications for the economy as a whole and for many individuals – we should be able to point to behaviours or outcomes that would result in dismissal, non-reappointment, or other serious sanctions. Or otherwise in practical terms central banker inhabit a gilded sphere of huge power and no effective responsibility at all. And central banks aren’t like a Supreme Court, where we look at judges to be non-corrupt (including conflicts of interest) and able……but the desired products are about process – judging without fear or favour – not about particular outcomes, or decisions in a particular direction. It is right that it should be hard to remove a Supreme Court judge. It is less clear it should be so for central bank Governors, MPC members etc. The jobs are at times difficult to do excellently, but no one is forced to take the job, with its associated pay, power, prestige and post-office opportunities.

The problem – power has been handed over, but with no commensurate real accountability – isn’t just a New Zealand phenomenon, but one evident across the entire advanced world (the ECB at the most extreme, an institution existing by international treaty rather than domestic statute).

When I wrote my review I noted that “it isn’t clear that any central bank policymaker has paid any price at all for the recent stark departures of core inflation from target. It tends not to be that way for corporate CEOs or their senior managers when things go wrong in their bailiwicks.” It is possible there is now one exception to that story – the decision by the Australian government not to reappoint Phil Lowe on the completion of his seven year term – but even there it isn’t clear how much is about specific policy failures and how much about a more general discontents with the organisation and a desire for a modernised etc RBA structure, and the desire for a fresh face atop it. The promotion of a senior insider – not known to have sharply dissented from what policy mistakes there were – is at least a clue.

It increasingly looks to me as though delegation of discretionary monetary policy to central bankers should be rethought. I have long been fairly ambivalent but when the system is faced with its biggest test in decades – in all the years globally of delegating operational independence – central banks fail (the only possible to read recent core inflation outcomes relative to the targets given them) and no one pays a price (with just possibly a solo Australian exception) it begins to look as though we should leave the decisions with those whom we can toss out – Grant Robertson’s fate on Saturday – and keep central banks on as researchers, expert advisers, and as implementation agencies, but not themselves being unaccountable wielders of great powers.

The outgoing New Zealand government has made numerous bad economic choices in the last couple of years. Prominent among them were the decisions to reappoint MPC members, to allow the appointment to the MPC of someone with no relevant professional background or expertise, to reappoint the chair of the RB Board (while surrounding him with a bunch of non-entities, none of whom had any relevant expertise) and (above all on this front) the decision to reappoint the Governor. The latter decision was most especially egregious because it was Robertson himself who had amended the law to require parliamentary parties to be consulted before a Governor was (re)appointed, and when the two main Opposition parties both objected, Robertson went ahead anyway. If the operational independence of a Governor, appointed to a term not aligned with parliamentary terms, means anything, it surely should at least mean that the person appointed commands respect – for their capability, integrity etc – across political party lines. By simply ignoring dissent – that his own reforms formally invited – Robertson made Orr’s reappointment a purely opportunistic partisan call. At the time – 11 months ago – I outlined a list of 22 reasons Orr should not have been reappointed (and at that I wasn’t convinced simply missing the inflation target was one)

I’ll come back – probably tomorrow – to a post on what I think the incoming government and its Minister of Finance (presumably Willis) should do about Orr and the Reserve Bank now.

But this rest of this post is to illustrate that not even the rituals Parliament forces them to go through – in this case the production of an Annual Report – amount to any sort of accountability at all. (One day. perhaps next year now, they will have to front up on it to the new FEC, but sadly select committee scrutiny – committees being seriously under-resourced – is hit and miss at best, the more so in this case if Grant Robertson is the key Opposition figure on the new FEC reviewing the performance of the man he appointed and reappointed.)

It is difficult to know where to start on the Annual Report that was released last week.

It might be quite useful if you care about the Bank’s emissions, as there is several pages of material, but you shouldn’t (since we have an ETS for that). It is almost utterly useless for anything much that the Bank is responsible for. There are administrative things like why the Bank has 22 senior managers earning more than $300000 a year, or why it has 36 people shown in the senior management group (in a total of 510 FTE), or why staff numbers have risen sharply yet again, or why – having signed up to a very generous five year funding agreement in 2020 – they were coming cap in hand for lots more funding (much of which they got) this year. Or why the part-time chair of the Board – who has a fulltime job running a university, and where many of the key powers are statutorily delegated to the MPC – is pulling in $170000 a year; this the same chair who has been shown to have actively misrepresented – and led Treasury to make false statements about – the past ban on expertise on the MPC (issues he has never addressed). Or why the Governor gets away with actively misleading FEC. Or how seriously (or not) conflicts of interest are taken (even how the Board sees itself relative to the recent lofty words in the RB/FMA review of financial institutions’ governance).

But on policy matters it is arguably even worse. In a year when core inflation has – again – been miles away from the Bank’s target, the Board chair’s statement is reduced to 1.5 emollient pages uttering no concerns at all (recall that the Board does not do monetary policy, but it is charged by statute with reviewing monetary policy and the MPC and making recommendations on appointments of MPC members and the Governor). We learn nothing at all from the highly-paid chair as to why he and his Board of unqualified non-entities considered, in the circumstances, that reappointments had been warranted (nothing in Board minutes has provided anything more).

We do however learn of the Board’s effort to indulge the political whims of the Governor and Board members, the Treaty of Waitangi (a) not being mentioned in the acts supposedly governing the Bank, and b) not itself mentioning anything even remotely connected to monetary policy or financial stability.

There is a couple of page section on monetary policy in the body of the report. But in itself this is a reminder that the MPC – which wields the power – publishes no Annual Report, and exposes itself to no serious scrutiny. In this central bank not only does the deputy chief executive responsible for economics and monetary policy never give a serious speech on the subject, she is never seriously exposed to either media or parliamentary scrutiny. External members are so sheltered we have on idea what any of them think, what contribution they make, and so on. They never front FEC or any serious media. Perhaps it isn’t surprising that the total remuneration of these three ornamental figures isn’t much more than what the chair of the Board himself is paid.

But then surely the Board would be doing a rigorous review (it is after all the Board’s job, by law)? That would be difficult when most of the Board has no relevant expertise (the Governor is the main exception, and he chairs the MPC….).

But what we actually get in no sign of any serious thought, challenge or questioning, no attempt to frame the MPC’s achievements and failings. Instead we get this process-heavy but substantively-empty little box

It might be interesting to OIA that “self-review” MPC members are said to have carried out, but you’d just have no idea from any of this that the biggest monetary policy failure in decades had happened on the MPC members’ watch – even as all expiring terms were renewed. It is Potemkin-like “accountability”, with barely even that level of pretence. (Note here that the weak internal review last year wasn’t even an MPC document but rather a management one.)

If that is all rather weak it gets worse when the LSAP comes into view. This, you will recall, was the bondbuying programme in which the MPC’s choices cost taxpayers now just over $12 billion, a simply staggering sum of money, swamping all those “fiscal holes” of the recent election campaign. There are lot of LSAP references – it is the Annual Accounts after all – but none from the Board chair, and here is the one substantive bit.

I’ve highlighted the utterly egregious bit. As they say, IMF staff did put out a little modelling exercise. but it has no credibility whatever, as the scenario described in the exercise bore no relationship to what actually happened in the New Zealand economy in 2020 and 2021. It was a scenario under which, even with the LSAP, the New Zealand economy languished underemployed for three years (but a bit less so because of LSAP) rather than an overheated economy with very high inflation and – in the Governor’s own words – employment running above maximum sustainable employment. I critiqued the piece in a post here, and I know of no economists who read the IMF piece and concluded “ah yes, of course, notwithstanding that the LSAP had a direct loss of $12bn, in fact the taxpayer was really made better off by that intervention after all”. I’m sure no serious economist at the Reserve Bank – there still are some – believes it either. But there seems to be a premium on keeping quiet, and keeping your head down, in the Orr central bank. It was dishonest when the Governor first ran this line in an interview with the Herald but perhaps then he’d seen no critiques (or asked for one); it is materially worse when the Board chair (and the Governor’s 35 senior colleagues) let him get away with it and repeat it, without any scrutiny or further attempt to make a case, in what is supposed to be a powerful public institution’s premier accountability document.

Any serious accountability for the Bank seemed to be dead, at least under the outgoing government. Whether it will be any less bad under the new government it is far too soon to tell. But if it isn’t, serious questions needed to be asked about whether the model is any longer fit for purpose in the sort of democracy New Zealanders typically aspire to have – we’ll delegate power, but if you take up that power and stuff things up then you should personally pay some price. In this document not only in there is serious scrutiny, no personal consequences, but not even a glimpse of contrition from any of them. Never mind the huge losses, never mind the arbitrary deeply disruptive inflation, never mind the lies……after all, the government hasn’t seemed to mind.

Almost any private sector CEO, committee or Board that had stuffed up as badly as the Reserve Bank – with corporate excess and loss of focus thrown in – would have been sent packing some time ago. The stock price would have been falling, investors demanding change, and the business press all over the situation. But not here, not our central bank………

MPC appointments, past and future

Michael Reddell MPC, Reserve Bank Board

A few weeks ago, just before I went away for 10 days holiday, the latest in the saga of the Reserve Bank MPC, and the blackball on external experts when the first MPC appointments were made, appeared in the Herald.

You’ll recall that it was widely understood that there had been such a blackball, put in place by the Bank’s Board and agreed by the Minister of Finance. It was widely understood by pretty much everyone – the Minister, Treasury and Reserve Bank staff, former senior Reserve Bank figures, (quite probably even MPC members themselves), a former senior adviser to the Minister, and Bank spokespeople – and was widely reported, and not denied, once the news got out formally with an OIA release from the Minister to me back in 2019, which had included a procedural papers from Treasury’s appointments and governance manager, handling the formal side of the appointment process, which described the blackball. Lines in that paper – that they were being particularly cautious but that a more relaxed approach might be adopted in future appointments – had been echoed in later comments by people speaking for the Bank. All this had come on top of the person, with macro-specific expertise, who back in 2018 had enquired about the MPC roles and been told by the Board’s recruitment firm that there was a blackball on research expertise, and who had then gone to the Board chair (Neil Quigley) himself to check, and had been told face to face that indeed there was such a ban. I wrote about it all here.

The reason I (and others) were still writing about it was that a few months ago, when forthcoming MPC vacancies were first advertised, it became apparent that the blackball had been lifted, and in this round people with research expertise and possible future research activity in areas of macroeconomics and monetary policy would not be barred from consideration by the Bank’s Board. That was, and is, good news (cynics might suggest that the Board is simply likely to fall back on adopting a slightly different test, barring anyone who might prove awkward for the Governor, but leave that issue for later). But then Treasury, backed by the Minister, issued a statement to the Herald claiming there had never been a blackball, it had all been a sad misunderstanding, and tossed one of their own former mid-level staffers under a bus by suggesting that when she’d written that memo to the Minister, she’d simply got the wrong end of the stick. And, so OIAs revealed, they made this comment – without any serious scrutiny or testing (including asking the person concerned) – because Neil Quigley had, on two occasions, this year told them so. The Treasury official had simply got things wrong, and all that had happened is that some academic who was interviewed for the role had refused to commit to not commenting publicly if appointed, and so that person had not been taken any further. Or so Quigley said.

In that post last month I outlined why this simply wasn’t a credible story, and that either Quigley was simply and deliberately misrepresenting things, or – years on – was suffering from a faulty memory, and had conflated two quite different things. Either way, his claim now that there had never been a blackball simply did not stack up, and Treasury should not have been uncritically making statements based on it, perhaps particularly when it involved throwing one of their own former managers (and managers at Treasury aren’t junior people) under a bus. Treasury should now be rather annoyed at Quigley, for putting them in a situation where taking him at his word – a senior government appointee – had left them with egg on their face (I have an OIA in on how, if at all, they have dealt with this subsequently).

Anyway, that is all prelude to the Herald’s story on 12 September. In my posts I had noted that among the many reasons for scepticism about the Quigley story was former Board member Chris Eichbaum. I knew he used to read my stuff (he told me so one day when I ran into him) and had not been backward in coming forward, commenting in replies on Twitter when he thought I’d got it wrong or been unfair about the Board and its role/performance. Not once had he objected to my characterisations of the existence of a blackball (this back before he left Twitter).

The Herald’s Jenee Tibshraeny got in touch with Eichbaum to see if he had anything to say now. He did. In fact, her story opens with an Eichbaum expletive.

Asked specifically about the 2023 Treasury denial, which had channelled Quigley, this was Eichbaum’s response

Well indeed.

He’d added

noting that today’s Board might not be as “risk-averse” as the old Board was.

Here it is worth noting that Eichbaum was not just any Board member, but was one of the small interview panel (him, Orr, and Quigley) for these MPC roles back then.

I also understand that Eichbaum regards the Herald article as having fairly and accurately represented his views/comments.

That might have seemed fairly open and shut. There are suggestions there is no love lost between Eichbaum and Quigley (one of the left, one of the right, and Quigley had been a former senior manager at Victoria University where Eichbaum taught – and comments on Quigley from people at Vic then often seem to have quite an edge to them), but it all seemed pretty clear. There was an expertise blackball, as everyone else had believed until Quigley belatedly sought to deny it.

But there were some more Eichbaum comments in the post, on a slightly different strand of what seems to have gone in 2018/19.

Which seems to give support to what outsiders have supposed all along (anyone awkward for management, especially the Governor, wasn’t going to be welcome), but is also consistent with that “consensus collegial” model of MPC decisionmaking which the Minister went along with (but which is not practiced in the best practice MPCs globally). The Bank had actually wanted to ban external MPC members from giving speeches or interviews at all, but the Minister didn’t go along with that…..and the practical solution seems to have been to appoint people who had neither the interest, inclination or ability to give speeches or serious interviews (despite being responsible, supposedly actually accountable, statutory appointees and decisionmakers).

But it also points to what Quigley may have been remembering when he falsely claimed there had never been a general blackball. There clearly was – as Eichbaum says – but it looks as though they may have also turned down one person who got as far as an interview because he/she wanted to be freer to speak. That wasn’t a wider general ban, but specific to an individual and the limitations of the model the Bank wanted around MPC. There was still a wider ban on people with actual/future macro research expertise etc.

But focus on that final para of Eichbaum. In open and transparent central banks – Bank of England, Fed, Riksbank – individual MPC members often give speeches or interviews, sometimes based on their own research, often drawing on their own analysis, outlining their thinking on issues, risks, and outlooks, including policy outlooks. It is quite normal, not at all problematic, and quite consistent with the inevitable huge uncertainty around any view on the outlook and likely required future stance of monetary policy. But we don’t want any of that sort of openness in the Robertson/Orr/Quigley Reserve Bank……and they’ve delivered. We’ve heard nothing of substance – research or not – from any of them.

And that might have been that, but on the same morning the Herald article Newsroom published a column on the MPC blackball issue by Eric Crampton, who has had many of the same views as me on the issue.

And one Chris Eichbaum left a comment.

This is the same person quoted in the Herald saying Treasury’s description of the blackball had been quite right, and it was only a shame Quigley hadn’t just said so and said they’d now moved on.

But this comment, if it is to be interpreted consistently with this comments to the Herald, must also be about that desire to ensure that no external MPC members were speaking in public at all, at least never articulating any views of their own. That is a different issues than the macro research expertise blackball – not much more defensible in substance, but at least with some precedents (notably in the RBA model that the Bank wanted to model its committee on – more ornamental than substantive).

What of that second paragraph? I am not aware of anyone who thought they had a “claim on MPC membership” – and Eichbaum seems to have no evidence for his claim – but a really large number of people, economists and not, many of whom would not have wanted to touch an Orr RB MPC with a barge pole, were nonetheless seriously disconcerted that our MPC was to be the only one in the world where formal expertise in the subject was a disqualifying factor. As it clearly was, as Eichbaum acknowledged to the Herald. And recall that the story did not break in the first place because some aggrieved academic went to the press but because a citizen used the OIA and the Minister of Finance complied with the law and released the relevant material.

In the Newsroom comments column Eric Crampton responded to Eichbaum. Here were some relevant bits of Eichbaum’s reply.

It is interesting in its way, but what it seems to confirm is the conflation of two quite separate events by Quigley. The block put on an individual at the interview stage seems to have been specific to one person’s desire to be free to communicate publically while in office.

But that is very different from the message conveyed by the Board’s recruitment firm – confirmed face to face by Quigley – that no one with active or future research interests in and around monetary policy would be considered (would even be longlisted), let alone interviewed or appointed.

There is no real doubt that happened. The person who recounted their experience to me is someone whose integrity and honesty I have never had any reason to doubt. The fact of that blackball also squares with what the record of a Board meeting discussion in 2018 suggested (copy in earlier posts).

But I realised that when the Bank had responded to my OIA request in 2019 re MPC appointments it had left out a lot of material that as clearly covered by the wording of my request. So I lodged a few weeks ago a further request – noting the prior omission – asking for all dealings with the recruitment firm around that first round of appointments. The Bank is slowwalking that request too – citing the need for “consultations”, about events 4-5 years ago – but before long we should have those answers too.

(Interestingly, I had another OIA back from the Minister of Finance last week re any discussions/advice this year re the blackball and its removal. It appears he was not involved at all (which I have no particular problem with, although one might perhaps have hoped for a more proactive approach).

Some of you will be wondering why any of this matters. To me it is a matter of two things. First, a really bad decision was made in 2018/19, which got the MPC off to a very poor start. But at least as importantly, because honesty and integity matters, or should do, in public life, and particularly in and around powerful independent agencies. We’ve simply not seen that from Neil Quigley (and here I am clear that his responsibility is personal: the Governor and management have not weighed in to support his, clearly wrong, story).

But it does bring us to today. In the papers I got from the Bank a month or so back there was a lot of material about the process that is underway to fill the two MPC external vacancies next year. It is a quite unsatisfactory situation. The Board – appointed entirely by the current Minister of Finance, few of whom have any relevat expertise – have not only advertised to fill the MPC vacancies, have had their recruitment firm tell at least one qualified person that they simply won’t be considered, but were on schedule to have conducted final interviews last month, positioned to deliver recommendations to the Minister of Finance once a new government is formed.

Perhaps that would be no great problem if a Labour-led government were to be returned – his friends and appointees on the Board will be delivering names consistent with the last few years’ model of the Reserve Bank. But it is highly unsatisfactory if there is a new government, especially in light of the concerns both National and ACT have expressed about the Governor and the Bank’s stewardship. If Nicola Willis is appointed Minister of Finance, she should start the process from scratch, making clear to the Board the sort of people, and sort of model (hopefully both more expert and more open) that she wants, opening the process to people who might be more interested in serving under such a model, even if Orr is still in place. The first vacancy is not until 1 April next year. It is very difficult to get rid of the Governor himself – and thus Willis has made a virtue of necessity in ruling it out – but if a new government is at all serious about change it has to start with a keen focus on all vacancies, MPC and Board, as they arise. Whether they are really serious – I’m sceptical – I guess only time will tell.

Just making stuff up: the chair of the RB Board and the blackball on expertise

Michael Reddell MPC, Reserve Bank Board

The government-appointed (and reappointed) chair of the Reserve Bank Board has been in the news today, after the reports earlier this week that in his role as Vice-Chancellor of Waikato University he’d been negotiating policy around a future new medical school at Waikato with National’s health spokesman Shane Reti. I don’t have any particular problem with such talks per se but what caught attention was this spectacularly inappropriate line

Reti seems to be a person of decency and integrity and one can half imagine him wincing when he read those words. Who, he might have asked himself, is the senior person who not only runs a public university but also chairs a major government board, who actually says such things, let alone writes them down.

There is also a (paywalled) Newsroom article this morning [paywall now lifted here] on Quigley, explicitly questioning his ability to keep holding the Reserve Bank job. I don’t think Quigley is a political partisan (National or Labour) – and he has had roles from both National and Labour governments – but he again displays a serious lack of judgement and tone-deafness (of the sort that was on display when he finally got one of his RB Board members to step down from an insurance company directorship, not because having such a role was a terrible look but because the OIA might lead to some scrutiny, or had never raised a concern at the government appointing the chair of Kiwibank’s then owner to the board of the bank regulatory agency). He can’t match the Governor for lowering the standing and reputation of the Bank – but then for the Governor it is a fulltime job – but it is a pretty consistently poor and damaging record.

And then there was the question of the ban put in place in 2019 on appointing people with active or likely future macroeconomic research expertise to the initial round of Monetary Policy Committee vacancies. It is clear that there was such a ban (now removed for the round of vacancies coming up next year) and that the Minister of Finance and the Bank’s Board (chaired by Quigley, with Orr a member who had to be formally consulted as well) had agreed on the ban.

Quigley claims otherwise. That there never was such a ban, that it all a castle built in the air on a paper written to the Minister of Finance (released to me in 2019) by a Treasury manager responsible for governance and appointments. He had had, he claims, no idea until last year where such curious, incorrect, ideas (of the sort people like me and Eric Crampton, and fulltime journalists, notably Jenee Tibshraeny, now of the Herald) had been writing about had come from. This was the extract in question.

Quigley even got Treasury and the Minister to say in public that it had all been a misunderstanding, and that there had never been such a ban.

About a month ago I wrote a long post based around an OIA response from The Treasury in which I had asked for background relevant to that Treasury statement. I outlined what Quigley had told Treasury twice, months apart, earlier this year, and compared it carefully to what had been revealed in (a) past OIAs from the Bank and Minister, (b) things I knew from first hand accounts, and c) comments from the Minister, the Bank, former Reserve Bank Assistant Governor John McDermott, and former ministerial adviser Craig Renney. I pointed out that the ban had been commonly and widely understood, not just among Reserve Bank watchers in New Zealand but in markets overseas (a Treasury manager reported having been challenged on it in Australia), and not in ways that were welcoming – more along the lines of derisive comments that the Reserve Bank of New Zealand was the only central bank in the world where actual research expertise would have been a formal disqualifying factor. As I had noted in one post, not even Trump’s Fed appointment standards had dropped that low. There had been plenty of opportunity for Quigley and the Bank (or the Minister) to have corrected the story at any time over several years, and Orr in particular has not been backward in coming forward when he thinks people aren’t representing him or the Bank in a way he likes. I’d encourage you to read that post as I don’t want to repeat it all here.

At about the same time as the Treasury OIA had been lodged back in June Eric Crampton and I independently lodged (somewhat overlapping) OIAs with the Bank re aspects of the blackball and its removal. Being the Bank, they were very slow to respond but we both finally got responses on Tuesday. There is a couple of hundred pages of material, although bulked out by releasing back to us both the 42 page response the Minister had given me in 2019, which they had probably in turn just got from my website (it was in the mix because last year a senior Bank official sent it to Quigley, who then started on his “no, no, that wasn’t so at all” line.) Both responses are linked to below (Eric’s first – with his permission- then mine which came in two separate big documents).

RBNZ OIA release to Crampton Sept 23 re MPC expertise blackball

RBNZ OIA release to MHR Sept 23 re MPC expertise blackball Part 1

RBNZ OIA release to MHR Sept 23 re MPC expertise blackball Part 2

The documents make interesting, and slightly depressing even incredible (literally almost unbelievable), reading in places.

The document set starts on 18 May last year when the Governor (Board member) sends an email to Nick McBride (the Bank’s in-house lawyer) cc’ed to his boss (one of Orr’s DCEs) asking about whole situation re ”criteria and expectations” for external MPC members, noting 

McBride says he doesn’t really know what went on (“as far as I know it was worked out between MoF and the RBNZ Board”) while noting (quite correctly) that there was nothing in the Act or the MPC charter or code of conduct that required or reflected a blackball on expertise. (Among outside critics I think this has been common ground all along. It would have been even more absurd had the law somehow enforced the ridiculous ban.) McBride comes back later that day with the extract (above) from the 2019 Treasury paper, pointing out that it had been released to me and had been what had sparked the coverage. McBride disavowed any knowledge of what had happened beyond that account. Neither he nor Orr seem to be in any doubt that there was such a restriction put in place for the 2019 appointments.

Nor had there been any doubt earlier in 2022, when Tibshraeny had been asking about the blackball in the context of the approaching expiry of the terms of two external MPC members. The Bank knew then, but outsiders did not, that the plan was simply to reappoint the incumbents so inside the Bank it appears the issue hadn’t arisen until Tibshraeny got what was probably a throwaway line from the Minister in a press gaggle, that he wasn’t aware of any change of criteria, and she then sought comment from the Bank. No one in any of the emails seems to have doubted that there was a ban – no one seems to have known much – but they just wanted to put Tibshraeny off (‘best not to throw any chum in the water’) so they agreed also just to line up with the Minister and say “no change”. So relative to what we previously knew, it is probably safe now to say there was actually no new information in those 2022 comments from MoF or the Bank. There is no record of them having consulted either Orr or Quigley at that point.

The final bit in the response to Eric Crampton was this from February 2023, when work was going on on the process and criteria for the next set of MPC expiries/vacancies. McBride and one of Bank’s governance people explicitly draw Quigley’s attention to the 2019 paper (Gael is Gael Webster, the Treasury governance and appointments manager who had signed out the paper). Note that section 9(2)(a) is a withholding ground around personal privacy: we might wonder whose.

It is pretty extraordinary, if this were an honest account, that the Board chair had never once in the previous 3.5 years asked someone why this view – that there was an expertise blackball, which he says he was aware of – was abroad. Extraordinary and not at all plausible, given that until last year the appointment of MPC members and of the Governor was the single most important powers the Board had.

My OIA had covered only material from this year and picks up in mid-February (just prior to that exchange with Quigley) as staff are reviewing processes etc for advertising for MPC vacancies. (Interestingly, the Comms manager suggests this would be a good case for pro-active release of relevant material, not a concept the Bank displays any practical sympathy with ever). The draft document they are commenting on includes among the things to be done

and in comments McBride recognises the ban, commenting that “the board needs to be clear about its attitude to including MP [monetary policy] subject experts on the MPC and this should be resolved at the outset.

The Economics Department is a bit slow with its comments, and didn’t comment until the next draft in early March. Chris Bloor, one of their experienced and respected managers, observed

to which the person leading the process responds

But they really weren’t very sure. In early April a paper went to the Reserve Bank Board on the MPC appointment process and it included this

And that was all that was new in the papers relevant to the issue. Note that there is no suggestion that anyone made any effort to contact Treasury or Gael Webster specifically, they simply went along with a story Quigley had given them years after the event. It seems not to have occurred to anyone (or perhaps it would be lese-majeste in today’s RB to have done so) to ask “but what about all those statements that have been made in defence of the ban previously?”, or “but if so many people had got the wrong end of the stick outside and abroad, why did we never clear up the confusion?”

I’m quite prepared to believe that there was an interview with an academic applicant (recall that academics themselves weren’t barred, and (non-macro) Prof Caroline Saunders was appointed), who told them “they would not give up their academic freedom to speak publicly about MP” [as MPC members in many other countries do speak] but on the most charitable interpretation Quigley must have been conflating two quite different events and sets of circumstances.

As I discussed in the earlier post, all those years ago a qualified academic told me that they had contacted the recruitment firm the Board was using and been told that they would not be considered because they did and might do in future macroeconomic research on matters relating to monetary policy, and that this was a criterion choice adopted by the Board. The same academic then saw Quigley at a function and asked him about this apparent ban, including if it was really the Board’s view. As recounted to me, and repeated recently, Quigley’s response was along the lines that they wanted to be very cautious and risk-averse for the first set of appointments and that the criteria might be relaxed in future rounds. That was well before anyone was longlisted, let alone shortlisted or interviewed. My interlocutor couldn’t even get on the page to be asked about how they would operate in practice if appointed. And you will note that that conditional statement about future appointments is very similar to the wording used in that 2019 Treasury memo that Quigley now seeks to disavow, throwing the author under a bus.

And how about some of the evidence I cited in the previous post? Here Quigley raises no objections to the Board Secretary’s account of a Board discussion of individuals and (see highlighted bit) criteria.

Here was how the Bank’s spokesperson was defending the blackball in 2019. Note the explicit use (their own words) of the line that “looser criteria could be adopted in future”.

And here was the Minister of Finance’s defence of the blackball in 2019; he also explicitly stated “over time this will evolve”.

There is simply no evidence for the (contemporary) Quigley version of events – the one he got Treasury to embarrass itself by making a statement defending (having asked no questions themselves, but happily tossing a former staff member under the bus).

(Having read the latest OIA releases I went back this morning and read the Bank’s 2019 release to me on matters around the MPC selection and appointment process. On rereading it I noticed that they had not disclosed any communications to or from the recruitment firm (nor identified such material with statutory grounds for withholding). A new OIA has been lodged this morning which may yet shed some new light.)

It is quite clear that there was a blackball on expertise (which has now, formally, been removed) and when Quigley told Bank staff and Treasury (twice) that it was not so, at best he was confused, and at worst deliberately trying to lay a false trail to cover later embarrassment at such a bizarre rule, all while deflecting blame onto an experienced professional who had been working for another government agency. Neither option reflects any credit on Quigley or the Bank whose performance he is supposed to oversee and hold to account. Once again it brings the institution into disrepute (though more so him as an individual and statutory officeholder).

One is always suspicious of what isn’t in these releases. There is relevant material that has been in other releases, including from Treasury, but not released in this set, and there is no record of any discussion (written or oral) between the Governor and his Board chair about any of these issues. That simply doesn’t ring true. But whether true or not, there is quite enough material in what we do know to conclude that, wilfully and deliberately or not, Quigley was simply not telling an accurate story when he has tried to convince staff and Treasury that there never was a blackball. He should be held to account for that. He should not – for this and a variety of other reasons – be the chair of our central bank and banking regulator, from whom we should expect openness. transparency, integrity, accountability….and the humility to acknowledge honestly when mistakes have been made (in this case both the blackball itself and the spin, attempting to rewrite history at the expense of others).

UPDATE: Eric Crampton has a follow-up post in which he bends very very far over backwards to find a charitable explanation. I don’t find it persuasive, and he doesn’t take account of several important items above, but it is worth reading as an alternative take.

There was a blackball on expertise

Michael Reddell MPC, Reserve Bank Board, Treasury

(This is a long post. The Executive Summary is that there was a bar on any active or future researcher on macro or monetary issues serving on the Reserve Bank MPC when it was established. Everyone accepted that this was so, and both the Minister and the Bank had defended the bar. Recently, the Reserve Bank Board chair Neil Quigley persuaded Treasury to state publicly that it had all been a misunderstanding and there had never been such a ban. None of the extensive documentation supports Quigley’s belated claims or explains Treasury’s willingness to champion his rewrite of history.)

About six weeks ago the ban that had been placed on anyone with current or likely future research expertise or interest in macroeconomics and monetary policy serving as external members on the Monetary Policy Committee was once again in the headlines. The Reserve Bank Board had just advertised to fill the two vacancies that will arise next year (yes, you might wonder why they were advertising now when it isn’t clear who will form the next government or what their expectations for the Reserve Bank might be, but leave that for another day). In the advertisement it was pretty clear that the former ban had now been lifted. If so, that was a really welcome step forward. The proof would still be in the sort of appointments eventually made, and the strong suspicion is that the more important (but unwritten) blackball is still in place – no one seriously likely to challenge the Governor or known for thinking independently was likely to be appointed. But it was a start. And would at least mean the Board and Minister were no longer open to the charge of having the only central bank in the advanced world (or most of the rest) where relevant expertise was a formal disqualifying factor from membership of a monetary policy decision making body. The list of former leading central bank figures internationally who would have been disqualified under such a rule is very long indeed.

I idly wondered what had led to the change.

The Herald’s Jenée Tibshraeny has done sterling work in giving this issue some of the coverage it deserved (where, one often wondered, were the Opposition parties), initially at interest.co.nz and now at the Herald. She asked what had gone on and got a surprising answer from The Treasury and the Minister of Finance. It had all, we were asked to believe, been a misunderstanding, and there never was such a restriction. Tibshraeny’s 21 June story is here. I wrote about the story, documenting how improbable these revisionist claims were, here. And then I lodged an OIA request with The Treasury.

To step back for a moment, the existence of this restriction was first confirmed in a response to an OIA I lodged with the Minister of Finance after the first MPC appointments were made in March 2019. The Minister’s response is here. A short Treasury report to the Minister, dated 29 January 2019 and signed out by the Manager, Governance and Appointments contained the following paragraph on the first (of two) pages (it was a covering memo relating to getting the Minister to send a paper to Cabinet’s Appointments and Honours Committee to make the MPC appointments)

It didn’t leave much room for doubt, and came as no surprise to me because what was written there was what I had been told some months earlier by a well-qualified academic who’d expressed interest in the possibility of an MPC role. Here is how I described in a post when the papers were first released by Robertson

I couldn’t use that information when the person first told me – and had to wonder if somehow they’d got the wrong end of the stick- but it informed the framing of my OIA. The person concerned was told of this bar as it applied to people like him by both the recruitment consultants the Board was using and by the Board chair himself.

Tibshraeny gave the issue coverage. Here was her 1 August 2019 story. There were scathing comments from former Reserve Bank Governor Don Brash, critical comments from Eric Crampton (and some of my post’s critical lines), as well as some comments from former Reserve Bank Governor Alan Bollard suggesting that perhaps all that had really been meant was not having people with “market interests”. But what really mattered were comments from the Minister of Finance himself and an official “Reserve Bank spokesperson”.

Here was Robertson

which sounds defensive and unenthusiastic, but certainly not suggesting that there was not a restriction, let alone suggesting that a Treasury official had simply made a mistake in that January 2019 report.

And from the Bank’s side

To the first paragraph one goes “of course” (as in, we don’t want MPC members also selling their wares to hedge funds etc at the same time), the second para is beside the point (the issue with the blackball was about research), and as for the third……..doesn’t that first phrase (“looser criteria…..”) read almost exactly like the words of the initial Treasury report. There was no suggestion at all that some Treasury official had just got the wrong end of the stick. Rather, as was their right (and job), they defended the stance that had apparently been adopted by the Board and the Minister. And while it was an anonymous spokesperson, there is absolutely no way those lines would not have been cleared with the Governor, and probably cleared with – but certainly advised to – the chair of the Board, Neil Quigley. Had Quigley then thought the Treasury report had misrepresented him or his Board, it would have been easy to have issued a clarifying statement.

And there the issue lay for a couple of years – there were no external MPC vacancies, and Covid overran everything. But in early 2022 the first terms of two MPC members were coming to an end. And in the margins questions were getting raised as to whether the blackball restriction was still going to be in place. Tibshraeny – who had talked to at least a couple of us – was on the ball again and went and asked both the Minister and the Bank about the specific restriction. Her story appeared on 19 February 2022.

There are no quotes from either Robertson or the Bank (presumably she just got responses along the lines of “no, there has been no change” rather than anything more enlightening).

Tibshraeny went further, seeking comment from others. This time she sought comment first from John McDermott former Chief Economist and Assistant Governor at the Reserve Bank.

And he wasn’t just speculating about the nature of restrictions. He had still been Chief Economist and Assistant Governor in the second half of 2018 when these policies and restrictions were being formulated, and is an active participant in email exchanges among RB senior managers on the sort of people who might be appointed (that were contained in the Reserve Bank’s OIA release to me in 2019 around MPC appointments). He disagrees with the blackball restrictions, but doesn’t suggest anyone misunderstood, because he will have known that it did represent the agreed stance of the Board and the Minister.

She also got comment from Craig Renney

Renney also knew the restriction was for real, and never suggests – even though it might have suited his former boss if it really had been so – that it had all just been an unfortunate misunderstanding by a Treasury official.

(As it happens, in that Reserve Bank OIA there is a copy of the questions for the interviews the Board sub-committee (Quigley, Orr, and Chris Eichbaum) conducted for short-listed candidates for the MPC. It is interesting, although not conclusive on its own, that none of them invite candidates to offer any serious thoughts on monetary policy, frameworks etc. Note also that Chris Eichbaum – a VUW academic with Labour connections – used to be quite active on Twitter, and was not shy of disagreeing with comments I made about the Board or monetary policy, and never once suggested that the blackball didn’t exist, that it was all just a mistake by a Treasury official. Nor, of course, has Orr – not usually a shrinking violet when he thinks other people have the wrong end of the stick.)

Anyway, all that was the public record until 21 June when the new Tibshraeny article appeared. These were the key lines

From Robertson

and from The Treasury

I’d lodged an OIA with Treasury (maybe should have lodged one with the Minister too, but didn’t so) seeking to understand why they had said what they were quoted as saying. I got the entire 111 pages back on Friday afternoon.

Treasury OIA reply Aug 2023 re the MPC research blackball

Perhaps it amused Treasury to let me know they read my blog since the very first document released (but probably out of scope) was this advice from the manager of the macro team to colleagues in the media and governance bits of Treasury.

The Treasury comments were prompted by this request from Tibshraeny

Note that her request was cc’ed to media people in the Minister’s office and at the Reserve Bank.

I’m not entirely sure where she got the idea from that the 2019 line had been an error, although she illustrates her point by reference to Bob Buckle. I dealt with that point in my June post

Since then Buckle has finally delivered a conference paper (which I wrote about here) but that is 2023 and there seems to be no doubt that the blackball, if it once existed, does no more.

And this was the official Treasury reply

And this was not something just cooked up at a working level by junior staff. Two Treasury DCEs appear on the relevant email chains, as does the comment that the draft would be cleared by the Secretary’s office and sent to the Minister’s office before it was finally released to the Herald.

All the claims here about the 2018/19 process are simply false. Senior Treasury officials seem to have allowed themselves to be gulled into taking at face value an attempt by Neil Quigley, chair of the Reserve Bank’s Board (and Vice-Chancellor of Waikato University) to rewrite history, all the easier for them to do as it seemed to involve simply tossing under a bus the former Treasury manager (who signed out that 2019 paper) who no longer works there.

There is bit more context in the first draft response prepared by the current Manager, Governance and Appointments and the Treasury manager who was responsible for macro policy in 2019 (Renee Philip)

Later in the release we learn that in March this year Philip had had a meeting with Neil Quigley

This is a strikingly uncurious email (from an experienced manager to the Secretary to the Treasury and to the Deputy Secretary, Macro), in which it appears not to have occurred to her that the Bank and the Minister had defended the restriction in public (more than once), or that people who had been in a position to know – McDermott and Renney – while disagreeing with the policy had never once suggested it was all a misunderstanding. Or that the Bank’s defence of the restriction had used very much the same words – re future appointments – as were in the now-contested 2019 Treasury report. (And although she had apparently read my posts on the subject had not internalised the report of a qualified person who had explicitly been debarred from consideration.)

Quigley also cleared the Treasury June 2023 statement. Here is what he had to say then

(Nick McBride is the Bank’s in-house lawyer)

So we are supposed to believe that a fairly hands-on Board chair (there are lots of emails from him in various OIAs) simply wasn’t aware until this year of lines Bank spokespeople had explicitly addressed in 2019 (and again apparently in 2022) about a process he had been one of the key players in. The Tui ad springs to mind.

But none of it rings true. Perhaps no one at the Bank saw the initial Treasury report when it was written in January 2019 (although it seems not very likely given that the paper trail shows active engagement with the Bank and Quigley re MPC appointments issues in late January 2019) but it is beyond belief that Renee Philip hadn’t seen it (even though her comments suggest the macro team only really became aware of the issue after the OIA release in July 2019) as not only does the paper trail show that the request from the Minister’s office for the paper came first to the macro team but there is an extensive trail of emails from that time (Jan/Feb 2019) on MPC appointment issues which typically have both the manager, macro and the manager, governance and appointments on them. It seems very unlikely the macro team did not see the final (short) report. And there is also no sign – in the paper trail or his later comments – that the Minister or his senior staff read the Jan 2019 report and said “no, no, you’ve misunderstood, I never agreed to any bar like that”.

But, as it happens, we have contemporary lines from Quigley from the OIA the Bank released to me in 2019.

Mike Hannah was at the time the Board Secretary. He records the Board’s discussion the previous day, in a summary to be sent on to the recruitment consultants, in which the observations from the Board included “an academic researcher active in the Bank’s areas would likely be conflicted”. And Quigley welcomes the summary with no cavils or suggested amendments. It isn’t exactly the same words as turn up months later in the Treasury report but it is strikingly similar to those words (which Bank spokespeople later defended). It also aligns with the report from such an academic who had engaged with the recruitment consultants and with Quigley himself at the time.

The snippet is also interesting because it illustrates that at this stage of the process neither Buckle nor Harris were in frame, and casts further doubt on Quigley’s 2023 claim that in 2018 the Board had actively considered active macro researchers. Buckle comes into the frame a little later in this email from Hannah to Board members suggesting names proposed by Bank senior management. Note that Buckle is treated as a “former academic with an interest in policy”, not as an active (macro) researcher.

Now, 2023 Treasury officials cannot necessarily be expected to have had all this at their fingertips (although the relevant OIA was sitting on the Bank’s website, and Treasury does have a heightened monitoring role re the Bank), but what staggers me is the lack of critical assessment of the Quigley story.

Now, as it happens that is not universally true. In the latest Treasury OIA we find

Leilani Frew is the DCE responsible now for the governance and appointments function (and Stella Kotrotsos’s senior manager). Her instincts look to have been quite right…..but there is nothing else in the pack suggesting she did anything with them.

There was also this

James Beard is the Deputy Secretary, Macro. His instincts, while more limited, also seem to have been right, but again there is no sign his unease went anywhere either.

If either Frew or Beard were junior figures perhaps you might not be surprised they were ignored, but these are two of the most senior figures in the Treasury. It doesn’t reflect very well on them or on the Secretary or her office (whoever finally signed the statement out). Or, for that matter, on the managers past and present involved in responding to Tibshraeny’s request. You hope the standards they bring to their economic and financial policy advice are rather higher.

But if senior Treasury figures showed themselves gullible and too willing to go along, they weren’t the ones who perpetrated this exercise in mendacity.

I’d really prefer there to be a charitable explanation of Quigley’s comments. Perhaps if it was the June ones alone one might put it down to being caught on the hop on a busy day – he has a fulltime job and universities seem to be in some strife – but those comments are substantially similar to ones he is reported as making to a Treasury official in a scheduled meeting months earlier. It is hard to see any credible explanation other than an embarrassed attempt to rewrite history (would you want to be remembered as the academic economist who was responsible for banning active or future researchers from your country’s MPC?). In Orwell’s 1984 the bureaucrats literally rewrote the old papers. Thankfully – and for all their limitations – we have the private media and the Official Information Act.

If I was Treasury I would be fairly deeply unimpressed (as well as somewhat embarrassed myself), and if I were Tibshraeny the idea that I had simply been lied to by senior officials (directly and indirectly) wouldn’t have gone over terribly well either.

Decaying institutions

Michael Reddell MPC, Reserve Bank, Reserve Bank Board

Decades ago I worked for a central bank in another country. I woke up one morning to learn that the Governor had been sacked, and by the time I got to work he was clearing his desk. He hadn’t done a bad job – and was one of the more inspiring people I ever worked for – but had fallen foul of the government (Minister of Finance and his colleagues/bosses). The law as it was meant that Governor could be removed whenever the government felt like it. for whatever reason the government felt like. It wasn’t a good model.

In the numerous attempts to capture just how independent various central banks are, one of the dimensions that usually appears is something around the dismissal provisions for key decisionmakers (in these days of committees and board, not just the Governor). Many older pieces of central banking legislation make it very hard to remove the Governor (in particular), removal often requiring things like the bankruptcy, severe mental or physical breakdown/incapacity, or imprisonment (and perhaps even a vote of Parliament). The Reserve Bank of New Zealand Act 1989 was quite unusual for its time, in that it made it easier to remove the Governor, but not because the Minister didn’t like the Governor’s policy calls (and all power was vested in the Governor personally) but if the Governor had failed to deliver on the policy targets he had agreed with the Minister that the Bank would pursue. Under the Act (and rightly so) the Bank didn’t get to define its own goals: the Governor got independence at an operating level to pursue an agreed policy target, and could be removed (at least in principle) if he did a poor job of using the operational independence. The Governor could not be sacked simply because the Minister got annoyed with him, or because the Governor had been appointed or reappointed by a ministerial predecessor of a different party.

That is pretty much as it should be. You can argue (and I long have argued) that even with a well-written law it is hard to make such accountability effective, and the dismissal of a Governor on policy grounds is almost inconceivable (reappointment could, in principle, be another issue) but the balance on paper is probably more or less right.

But these days we have a Monetary Policy Committee to make monetary policy decisions. The government chose to adopt a model in which several external members serve on the MPC, and I’m pretty sure it would not be hard to find speeches from the Minister of Finance championing this innovation and the important contribution people with a diverse range of views and experience would bring to monetary policy decisionmaking.

In principle, appointments to the MPC are at a considerable arms-length from the Minister (the Board proposes candidates and the Minister can’t substitute people he or she prefers). On paper, members of the MPC can’t be removed because the Minister doesn’t like them or because they advocate monetary policies the Minister doesn’t like. It is hard to remove an MPC member

(Actually doing monetary policy in accordance with the Remit is one of the “collective duties”.)

What is more, at least on paper MPC members can only serve two terms, so if there is a bit of an incentive to stay on the right side of the Minister in the run-up to reappointment, at least any such period shouldn’t last long.

If you believe in an operationally independent central bank (and, on balance, I still probably favour one), the basic framework looks good. The Act does actually allow the Minister to explicitly override the Bank on monetary policy, but that has to be done openly and formally, not by the dangling threat of dismissal.

But then the Caroline Saunders term came to end (or so it appeared) and we were sent back to check the statute books. I wrote about it here. There we were reminded that there was a provision for an MPC member to have their term extended for up to six months. This appeared to be a more or less sensible provision given that election timing sometimes interferes with the making of permanent appointments or reappointments to significant government roles (although other than for the Governor hardly a vital provision given that there are seven MPC members in total, and the MPC could probably function just fine for a few months with 5 or 6 members), and it was quite similar to a position in the UK central banking law.

What probably few of us noticed was that the law also contained a provision under which when an MPC member’s term of office ends they can simply remain in office unless or until the Minister of Finance actively appoints another person or tells the person whose term in ending to go.

Caroline Saunders’ first term as an external MPC member expired a month ago and she is still in office (it is now May and the Reserve Bank website shamelessly continues to describe her term ending in April). There has been not a word from the Minister of Finance or the Bank (Board or Governor) as to what is going on. In effect, the Minister of Finance has transformed Saunders’ position from one that looked like an explicit fixed term one to one in which she serves from day to day at the pleasure of the Minister of Finance. Just like my story in the first paragraph. It is a terrible way to be doing things (and a month on is clearly a conscious and deliberate choice by Robertson, not a matter of a few days until last minute reappointment loose ends could have been tied up).

To be clear:

  • there is nothing to have stopped the Minister of Finance formally reappointing Saunders to a further full four year term (at least, so long as the Minister’s handpicked underqualified Board was willing to recommend here),
  • there would have been nothing to have stopped the Minister formally extending Saunders’ term for up to six months (seems not to even require a Board recommendation), a term that itself would have been short but fixed.

But there is no sign that the Minister or the Board have put in place any process to reappoint or replace Saunders (although I have various OIAs in which may shed some light), and instead the Minister has setted for a de facto “dismissable at will, serving at the pleasure of the Minister” model.  It has got no coverage, but it should have, including because it sets a terrible precedent.

Since he has said nothing,and has been exposed to no media or parliamentary scrutiny, I have no idea what is going on in Robertson’s head here.   I don’t really believe that he has done it to exert policy leverage over Saunders (“keep voting a way I’m comfortable with or you’ll be gone tomorrow) both because no one believes the external members wield or attempt to wield any clout, and because Saunders has a day job in other fields (she doesn’t really need the MPC role).  It is also odd because the election is approaching and you’d have assumed this government wouldn’t want to risk leaving an open seat for an incoming Minister to fill early on (they will already be unable to appoint pre-election a replacement for another external MPC member, Peter Harris, whose term expires in October).    Perhaps I’m being too charitable, but whatever the explanation (a) we should be getting one, and (b) if small things are allowed to slide it opens the way to more serious abuses and pressure by others later.   MPC members simply should not be dismissible at will, and at present Caroline Saunders is.   The current situation reflects poorly on the Minister, but also on the Board and the Governor (who have presumably gone along), and actually on Saunders, who if she cares at all about operational independence for monetary policymakers should have insisted that she be reappointed formally or, if not, should have walked (which she could have done with no drama whatever).      An incoming government that was serious about fixing the deficiencies in Robertson’s legislative reform of the Reserve Bank should simply repeal the “serve at the pleasure of the Minister” provision (I am not aware that comparable advanced country central legislation elsewhere has that sort of provision, especially when there is already statutory provision for a short fixed-term extension to deal eg with election timing issues).

Changing tack, I stumbled on this call for papers on the Reserve Bank website the other day

Were it the website of a university sociology department or policy centre it might all be rather unexceptional, but this is the central bank. 

The Reserve Bank of New Zealand Act, freshly minted, sets out objectives for the central bank and functions for the Reserve Bank.  I won’t bore you with another big cut and paste.  Suffice to say, neither of those sections mention, or even hint at, “financial inclusion”.  In fact, the words don’t appear in the Act at all.

Now, the Reserve Bank would no doubt point out the under the new Act there is a new document, the Financial Policy Remit. The first one is here. But the legislation itself makes it clear that whatever the Minister puts in the Remit, it is all about the exercise of the Bank’s statutory powers, fulfilling its statutory functions and purposes. It isn’t licence for the Bank to go spending public money and scarce management focus on just anything it, or even the Minister, might like.

. Much of the Remit wouldn’t get too much argument from most people, and the government’s “desired outcomes” are well within a reasonable range of possible emphases, as guidance for how prudential and crisis management powers should be exercised.

“Inclusive: does get a passing mention there, but over the page under “Other government policy priorities” we get this (1 of 4)

You might, or might not, think that sensible, but…..it has got nothing to do with anything the Reserve Bank has statutory responsibility for, or powers (which can only be exercised for statutory purposes). If there was a policy role for any agency, you might expect them to be turned to MBIE (ministry of subsidies) or The Treasury.

The Reserve Bank got a huge budget increase a few years ago (although the surprise inflation they inflicted on themselves and the rest of us means the real increase is less than they thought), so you might have thought that the Bank had money, time, and staff galore to throw at hosting symposia. In fact, they seem not to have had the resources or the interest in hosting workshops, symposia or conferences on issues they are actually responsible for – including ones where there have been major recent puzzles and failures.

They have a Seminars and Workshops page. Here are the events of the last few years

Readers of a charitable disposition –  shouldn’t we all be? –  might look at that top entry and think “well, that is clearly topical and something they were responsible for”.  Unfortunately, it is also almost two years ago (before either the inflation or LSAP losses were much in focus at all), and as my write-up of the event records, it was much more of a Treasury event with little on monetary policy and no serious policy contribution from any Reserve Bank figure. 

Since then, basically nothing.   The Bank is currently finalising its advice on the next Monetary Policy Remit, and although they took public submissions on that there has been no workshop or conference or call for papers.   Late last year, the Bank published its five-yearly review of the MPC’s conduct of monetary policy, and there has been no workshop or conference or call for papers on any of that.  Serious speeches on monetary policy (let alone financial regulation and supervision, which most Bank staff now work on) are all-but non-existent.  And the Bank publishes no research itself on financial stability or regulatory matters, and hardly any on things relevant to monetary policy.  Lose $10bn of taxpayers’ money and have core inflation blast well beyond the top of the target range, and we get….well, almost nothing.  Not even an apology, let alone some serious engagement, scrutiny and critical review and analysis.

But…..indigenous financial inclusion is apparently where the Governor and Board have decided to establish their research/workshop priorities. 

Of course, many other central banks these days hare off down paths that seem barely relevant to the purposes they were established for (that entire Central Bank Network for Indigenous Inclusion fits that bill –  and won’t anyone think of the Icelanders) but I can’t spot one whose only conference or serious workshop in several years is on something they have no serious responsibility for at all.      Among the almost-countless such events hosted by bits of the ECB or the Fed (yes, they are big economies) the best known is of course the annual Jackson Hole symposium.  These are the topics from the last few years

The Reserve Bank of New Zealand doesn’t have those sorts of resources or the pulling power.  We are a small and not very wealthy country.  But in such countries, scarce public resources should be being used in ways ruthlessly aligned to institutional priorities and statutory functions.  The Reserve Bank’s workshop, by contrast, has the feel of management and the Board plundering the public purse to pursue personal ideological whims and interests.   The same management and Board that displays no interest whatever in serious scrutiny or engagement or research on things they are actually responsible for, where they have made big calls in recent years, some of which have already proved deeply costly.

Jackson Hole it ain’t.

Here, you can go four years and not hear a speech or a paper from even a single external MPC member –  members barred from doing any further research or analysis themselves.  But never mind I suppose they say, it is only taxpayers’ money.

Reappointing Orr – some documents

Michael Reddell Adrian Orr, Reserve Bank Board

Yesterday’s Herald had an interesting article on the reappointment late last year of Adrian Orr as Governor of the Reserve Bank. The article appeared to have been prompted by the Bank’s response to an OIA I lodged last year asking for background material on the reappointment. A link to that OIA response is now on the Bank website.

The key quote was this, from the letter from the Board chair Neil Quigley to the Minister of Finance recommending Orr’s reappointment.

“The governor will also model the highest standards of behaviour in promoting a safe environment for debate and in treating with respect those people with different views from their own, consistent with Public Service Commission guidelines,” 

The best that might be said for that claim is that it may represent wishful thinking that somehow their leopard once reappointed might change his spots. So many people who have interacted with Orr was Governor, or observed him interacting with others, could testify that he has modelled none of that sort of behaviour (and there are specific accounts on record from people for Victoria University’s Martien Lubberink and the NZ Initiative’s Roger Partridge, as well as the story that Quigley himself one day felt obliged to pull Orr out of a Bank Board meeting over concerns about Orr’s conduct in the meeting). Watch any Orr appearance at FEC and much of time his response to challenge and questioning has been pretty testy. There must have been a recent Damascene conversion for Quigley’s assertion to the Minister to be anything other than wishful thinking at best. More likely it is just outright spin.

There was another interesting quote in the Herald article itself, from Chris Eichbaum a Labour-affiliated member of the outgoing board (both the outgoing board and the new Robertson board recommended the reappointment). Eichbaum is quoted as claiming that

An outgoing board member, Chris Eichbaum, confirmed to the Herald the old board went through a “robust and exhaustive”, “backward and forward-looking” process before coming to its decision to endorse Orr.

However, the Bank released summary minutes of the relevant meeting of the non-executive old-Board directors on 12 May last year (which, incidentally, was attended by Rodger Finlay, at the time chair of the majority owner of Kiwibank, the subject of Reserve Bank prudential supervision). The entire meeting lasted only an hour, with five items on the agenda, including the Annual Review for the then Deputy Governor.

“Perfunctory” looks like a more accurate description than “robust and exhaustive” – which isn’t surprising since the old Board had no formal responsibility any more and most of the members were by then probably more interested in their own next opportunities beyond 30 June (I recall one telling us at about that time of the next role he was going to take on once he left the Bank Board). You get the impression that the new Board – on average even less fit for office – must have been even more perfunctory in its deliberations because the Bank neither released nor withheld minutes recording their deliberations on the matter (at their very first meeting on their first day in office, 1 July). Note that not even the Bank’s own self-review of monetary policy was yet available to either Board.

The Reserve Bank OIA response was not, however, the only relevant one. When Orr was reappointed I lodged requests with the Bank, The Treasury, and with the Minister of Finance. They all obviously coordinated their responses since all three were late and all three finally arrived on the same day.

What was interesting in these releases is what wasn’t there (not what was done but withheld, but what appears never to have been done). Thus one of the better aspects of the amended Reserve Bank legislation was supposed to be a heightened and more formalised role for The Treasury in monitoring the Bank on behalf of the Minister of Finance. But there is no advice at all from The Treasury to the Minister of Finance on the substantive pros and cons of reappointing the Governor even though (a) Treasury had just taken on a new heightened role and responsibility, and (b) the question of reappointment was arising amid the biggest monetary policy failure for decades. They drafted the Cabinet paper for the Minister of Finance to reflect the Minister’s own views, but that seems to have been all. There is no sign Treasury was even made aware, let alone asked for advice, when the two Opposition parties raised concerns about the proposed reappointment, even though this was the first time such consultation provisions had existed for a Governor appointment.

As often seems to be the case, the Minister of Finance’s response was fullest, although there were these documents withheld

Intriguing, since there is no sign in any of the other documents of any legal doubts about the ability to reappoint (and all these documents pre-date the letter from Quigley cotaining the Board’s recommendation to reappoint Orr).

The statutory provisions the Minister had inserted require the Minister of Finance to consult other parties in Parliament before recommended to the Governor-General the (re)appointment of a Governor. It was an interesting addition to the legislation (and arguably there is a stronger case for such a provision for the Governor than for Board members, where the record indicates that the Minister had already treated the consultation provision as no more than a cosmetic hoop to jump through on the way to doing whatever he wanted) and certainly suggested an intent that anyone appointed as Governor should at least command the grudging acceptance of other political parties (perhaps especially the major ones) given the huge discretionary power the Governor, Bank and Governor-dominated MPC wield.

Here is the body of the letter sent to the other parties on 19 September

Interestingly, the letter makes no substantive case for the proposed reappointment, addresses nothing (good or ill) about his record etc. I guess parties might be presumed to know Orr, but it still seems a little curious to make not even a one sentence case. But that is the Minister’s choice.

Three of the four non-Labour parties in Parliament responded (the Maori Party did not). This was the response from Genter/Shaw for the Greens

Being an unserious party, they supported reappointment because of things the Bank and Governor have no statutory responsibility for.

Both National and ACT expressed opposition to the reappointment. The letter from Nicola Willis has been released previously and so I won’t clutter the post by reproducing it all here. Their opposition was on the (deeply flawed) ground that they believed no five year appointment should be made for a term starting in election year (even though the starting date for the second term was in March 2023 and the election then seemed likely to be in October or November). However, Willis ended her letter this way.

Willis has since described the reappointment as “appalling”, but seems to continue to rely on the argument about a five-year term even though (as I’ve pointed out previously) their 2017 comparison is flawed and the legislation has always been designed deliberately not to make it easy for new governments, of whatever stripe, to come in and appoint their own person.

We had known that ACT was opposed to the reappointment but had not seen the body of Seymour’s letter back to Robertson. It is a couple of pages long and raises substantive concerns about both style and policy substance (but rightly not questioning the ability of the government to make a five year appointment). It has a distinctive Seymour style to it (and so even as an Orr sceptic some lines jar with me) but it is an undeniably serious document, in response to the first ever statutorily-required political party consultation over the appointment of a Governor.

But it was all just ignored. This is what little the Minister of Finance told Cabinet

so not even a hint as to the nature of the concerns the Opposition parties had expressed, or any reflection on what expectations (around multi-party acceptance, if not endorsement) the government’s own legislation might have given rise to.

After the Cabinet paper had been lodged, Robertson did write back to Nicola Willis in a fairly substantive letter (the full text of this and other documents is in here)

Robertson OIA on Orr reappointment 2022

The Minister rightly pushes back on the argument about pre-election appointments, highlighting the substantial differences to the 2017 case (and actually makes the interesting point, that I had not noticed, that the law provides for only a single reappointment, so any one year term for Orr would have to have been his final term).

Perhaps of more substantive interest are the comments from the Minister on the Governor’s monetary policy stewardship

A lot more spin than substance, that fails (completely but no doubt deliberately) to distinguish things central banks are responsible for and those they aren’t really, chooses not to distinguish shocks that New Zealand did not face (eg global gas prices), and in the end is simply complacent about the serious core inflation outbreaks here and everywhere else. There is no sense of any accountability.

The Minister’s letter ends this way

Not only has the entire legislative structure long been built around a model in which the Minister of Finance has always been free to reject a nominee (but cannot impose his or her own favourite) but it was Robertson’s own government that added the political party consultation provisions. Rejecting an Orr nomination – especially after both Opposition parties had expressed serious concerns – would not to have been to politicise the process, but would simply have been the Minister of Finance doing his job. As it is, the risk now is that the consultation provisions will come to be regarded just as an empty shell.

Those paragraphs above from the Minister’s letter to Willis are nonetheless of some interest because they are the only material, across three separate OIA responses, even mentioning the conduct of monetary policy on the Governor’s watch. In the Board minutes (see above) there was no sign of any consideration or analytical input (not that none of the Board members really had the capability to provide such an assessment themselves. In the Quigley letter to Robertson there is this

which is not only input-focused (rather than outcomes), focused on March 2020 (rather than the aftermath), but shows no sign of any critical reflection or evaluation. And in the Minister’s paper to Cabinet monetary policy and inflation – let alone $9bn of avoidable losses to the taxpayer – get no mention at all, just burble about Orr as a change manager (leading decline and fall perhaps?)

It was a poor appointment (my long list of reasons was in this post) even if one that was always to have been expected, since Robertson had never displayed any serious interest in accountability or performance, or much in the substance of the Bank’s role at all (and failure to reappoint might have risked raising questions about the government itself). But it is still a little surprising how short on substance, around the key failings of the Governor in recent years (style and substance), the documented parts of the process leading to reappointment seem to have been.

There are, of course, some levers open to a new National/ACT government were they to win the election, but it would be a little surprising if they do much at all. More likely, the decline and fall of a now bloated and unfocused institution will continue through Orr’s second (and apparently final) term.

Reluctantly and belatedly recognising conflicts of interest

Michael Reddell Adrian Orr, Reserve Bank Board, Rodger Finlay

For just over six months now I’ve been on the trail of questionable appointments to the new Reserve Bank Board. Most of the Board members aren’t really fit for office in anything other than ornamental roles – this in the midst of the worst monetary policy failure in decades and the Board being responsible for key appointments and for holding the MPC to account. But my main focus has been on the appointment last October of Rodger Finlay, while he was chair of the majority owner of Kiwibank, with a lesser focus on Byron Pepper, appointed in June this year while also serving as a a director of an insurance company operating in New Zealand (the largest shareholder in which was another insurance company subject to prudential regulation by the Reserve Bank.

The Reserve Bank has spent months trying to avoid/delay answering questions about these appointments. For any first time readers, the appointments themselves are made formally by the Minister of Finance, but materials previously released make it clear that the Reserve Bank (and The Treasury) were actively involved in the selection and evaluation of candidates for Board positions (as is quite customary).

A few weeks ago, the Bank gave me Hobson’s choice. Either face the likelihood of them declining the entire OIA request I had had with them (with the chance that one day, a year or two hence, the Ombudsman might make them give me more) or accept something of a black-box offer.

I took the offer. Yesterday I received their response.

RB pseudo OIA response re Finlay and Pepper Dec 2022

As I will lay out, there is some interesting material included, but as I had half-expected it is a pretty cagey and dishonest effort, since it includes nothing at all about how conflicts of interests had or had not been handled in the selection, interview, and evaluation process prior to the appointments being made.

Taking Pepper first, the documented provided is a four page letter dated 27 July 2022 (a month after Pepper’s appointment had been announced) to Pepper from Neil Quigley, the chair of the Board. In that letter, which addresses advice from both internal and external legal counsel, Quigley acknowledge that Pepper himself had been entirely upfront

I acknowledge that you have pro-active and transparent in declaring the above interests in each of your pre-appointment discussions with RBNZ board members and senior executives of The Treasury, and that you subsequently confirmed these in your pre-appointment interests disclosure to RBNZ staff.

But…

The RBNZ is …. under constant scrutiny from both its regulated institutions, market participants and interested members of the public as a whole. The RBNZ is also subject to the Official Information Act, and more generally as a public institution has an obligation to respond in good faith, and within the limits of privacy and commercial sensitivity, provide good faith responses to
questions and enquiries received. As a result, the RBNZ needs to set the highest standards, and take appropriately conservative approaches to the management of interests and the avoidance of both actual and perceived conflicts of interest, as both Mr McBride and Mr Wallis point out in their advice to me. This also means that the RBNZ needs to avoid complexity and opaqueness in managing in the interests of Board members, because these are challenging to explain to journalists and to the
public.

and “the legal position will not stop interested members of the public from asking us how we manage the situation”.

Quigley (no doubt here also by this time reflecting the stance of the Governor) writes

Pepper then chose to give up the insurance company directorship (he could presumably instead have resigned the Reserve Bank directorship).

A few quick points:

  • one might have some sympathy with Pepper himself. He appears to have hidden nothing, and the Reserve Bank Board role was the first government appointment he appears to have received.   A really strong ethical perspective should probably have had him recognising from the start that it was going to be a dreadful look to be both an insurance regulator (director thereof) and director of an insurance company operating in New Zealand (even one not directly regulated by the Bank), but (a) he’d been open, and (b) had got through the recruitments consultants the government was using, discussions with senior RB and Treasury figures, and Cabinet.
  • did Neil Quigley (and Orr and the rest) not appreciate previously that appointees to the new, much more powerful, Reserve Bank Board were going to receive scrutiny, and that actual, potential or perceived conflicts of interest would inevitably be a major focus for a Board responsible for prudential regulatory policy across banking, non-bank deposit-taking, payments systems, and insurance?  If not, why not?
  • even at the late date of the letter, Quigley seems to regard the problem as being as much the OIA rather than the importance of appointments to powerful regulatory agency bodies being above reproach or ethical question.  In fact, it is blindingly clear that Quigley, Orr and the rest of them approached Board appointments only with the narrowest legal constraints in mind.  If, as the law was written, the Pepper (or Finlay) appointments were not illegal (and they weren’t) there could be no problem. Astonishingly, in both cases The Treasury –  much more experienced in making and advising on government board appointments generally – seems to have gone along (as did the Minister of Finance and his colleagues).  It is a poor reflection on all involved.

And that is all I want to say about Pepper. In the end, the right thing seems to have been done, but only after public and media scrutiny and criticism.  Recall that a few years ago Orr got on his high horse about “culture and conduct” in the financial sector: we really should have been able to expect a much higher pro-active standard around key appointments than was evident here, and as so often concerns brought to light on the things we the public get to see leave one wondering about the standards the Bank and Board chair apply in areas we don’t easily get to see. 

What of the Finlay issues?

What has been released (link above) is a three-page summary, apparently prepared by the Bank’s in-house lawyer summarising various selected bits of correspondence relevant to the handling of Finlay’s conflicts of interest but only from the time his appointment to the Reserve Bank Board, from 1 July 2022, was announced in October 2021 (plus some editorial spin intended to try to shape the interpretation drawn by readers).  Between those two dates Finlay was paid to serve on the “transition board” handling the establishment of the new governance regime, but previous OIAs have disclosed that he also routinely attended meetings of the then-official Reserve Bank Board during this period.  My OIA request had explicitly covered a period starting on 1 April 2021, shortly before the public advertisements had appeared for positions on the new Reserve Bank Board, and it is telling that the Bank has chosen to release nothing from the selection and evaluation period.

Were this Reserve Bank document to be the only material we had, it might appear that everyone had acted honourably and appropriately in a slightly difficult time (what with secret discussions around the future ownership of Kiwibank going on in the background that very few people –  Treasury, Bank or even Ministers –  could reasonably be made aware of).

Thus

  • on 18 October 2021 we are told that Rodger Finlay “had outlined all interests that might potentially be relevant. In particular, he declared interest [in] (as a director of) NZ Post and Ngai Tahu holdings.” (this latter, which I have not focused on relates to the substantial – but not controlling – stake Ngai Tahu was taking in an insurance company that is subject to Reserve Bank prudential supervision)
  • on 20 October, the Governor asked about commitments Finlay had made about “management of conflicts of interest”, with Quigley weighing in that the Bank needed to “remain conservative on this front and maintain a very low risk appetite, particularly regarding Kiwibank”
  • on 17 November, a couple of senior Bank staff met Finlay who “outlined how particular interests could be eliminated before 1 July 2022 [presumably a first reference to the prospect of changed Kiwibank ownership] and how any COIs that could not be eliminated could be managed post 1 July 2022”
  • on 23 November, the Governor noted that “Kiwibank’s ownership structure would be resolved by July 2022….The Governor sought more information on how any conflicts through Ngai Tahu Holdings could be managed”.  Quigley responded “noting that it is important to avoid or resolve perceived COIs as it is to avoid or resolve actual COIs”, noting that he would discuss the Nagi Tahu situation further with Finlay, but “expected NZ Post will resolve itself by July 2022”.
  • on 17 March 2022, Finlay emailed the chair and Governor indicating he had been advised that NZ Post’s divestment from Kiwibank would be complete before 1 July 2022, and that he was no longer chair of the Ngai Tahu Holdings Audit Committee.

In the editorial at the end of the document this appears

finlay dec 22

(That final paragraph is not very satisfactory, since my OIA request had been explicitly about conflicts of interest generally, and not just the Kiwibank case, although it is slightly encouraging that the Bank has at least been cognisant of the conflict, even if it is not dealt with at all adequately by the restriction mentioned, since it seems Finlay is free to participate in discussions and votes on policy matters that affect a regulated company he has a significant interest in, as director of a significant shareholder.)

All that might sound fairly exculpatory for the Bank (perhaps especially Quigley, who seems to have been more concerned than management) and for Finlay – all honourable people acting in an honourable and above-board way, and all that.

Except that (a) not only does none of this cover the period before Finlay was appointed, but (b) what little the Bank released is far from all we now know about what went on.  I’ve written various posts on various material Treasury and the Minister of Finance have released.  Of particular interest is the “incident report” prepared over the signature of Treasury deputy secretary Leilani Frew. You will recall that the Secretary to the Treasury had had to apologise in writing to the Minister of Finance in late June for the failure of Treasury staff to ensure that Finlay’s conflicts re Kiwibank were disclosed in key papers to the Minister and to Cabinet.   The “incident report“, which I wrote about here, had been requested by the Secretary, to identify what went wrong and what lessons there were for the future.  Since it wasn’t written for publication, and The Treasury had by this time already owned up to an error, and since it covers the full period, it should be treated as a much more reliable and complete account than what the Bank has now selectively released.

Of direct relevance

Conflicts of interest were closely considered throughout this process. G & A Manager Gael Webster sought statement of conflict protocols from the Chair of the RB board, set up the process for the appointment of Transition board members and the new board, and contracted Kerridge & Partners to run the recruitment process, initially for the Transition board.

Kerridge met with the Treasury and RB Governor where conflicts were discussed, and Kerridge was provided with the Bank’s conflict protocols.

We also already knew, and the incident report confirms, that Finlay himself disclosed no possible conflicts to the consultants or the interview panel (not Kiwibank, not Ngai Tahu).

The report goes on

The due diligence interview with Mr Finlay proceeded with a panel comprising Sir Brian Roche as chair, Neil Quigley and Tania Simpson from the current RB board, Caralee McLeish, Wayne Byres (chair of the Australian Prudential Regulation Authority), and Murray Costello. The panel knew that Mr Finlay was chair of NZ Post which owned a majority share in Kiwi Group Holdings Ltd, which in turn owned Kiwibank, which is subject to regulation by the RB.

Sir Brian recalls conflicts being discussed but it was considered Mr Finlay was not conflicted. The RB’s Conflict of Interest policy stated that Mr Finlay would have a conflict that should be declared if he was a director of Kiwi Group Holdings Ltd, or a director of its subsidiary banking company Kiwibank Ltd. Neither of those situations existed and Mr Finlay is completely removed from the governance and operations of Kiwibank.

This reflects poorly on every single one of these people. There is no sign any of them were yet aware of the Ngai Tahu issue (which, see above, the Bank itself now appears to regard as a real conflict) but as regards Kiwibank they seem to have been driven by a narrow and legalistic interpretation – that can only have come from the Reserve bank side – that whatever was not illegal was therefore entirely proper and unproblematic).

Now, quite possibly – we don’t know – discussions around the future ownership of Kiwibank were already underway by mid last year (when the interview and evaluation were going on), but we know that The Treasury staff dealing with this appointment were not aware of that project until March/April this year, it seems unlikely the matter would have been disclosed to a foreign regulator (Byres, Kiwibank having no Australian presence), there is no sign Roche was aware (or surely he would have mentioned it as a consideration when asked in June/July 2022 by people who themselves were now aware), and even if Quigley was aware there is no obvious reason Simpson should have been advised (the old RB Board being purely advisory on policy matters). It seems quite safe to conclude that judgements – in which the Reserve Bank shared – about Finlay’s acceptability for the Reserve Bank Board role were made in the expectation that he would continue to be NZ Post chair and that NZ Post would continue to own the majority of Kiwibank. And it is just inconceivable how they – and especially the RB people, who should have been most concerned with, and conscious of, appearance risk – thought it was okay.

(In the material the Bank released there is an attempt to minimise Finlay’s role at Post and Post’s role re Kiwibank, but none of it changes the fundamental fact that Reserve Bank policy decisions would potentially severely affect the operations and fortunes of an entity NZ Post, chaired by Finlay, majority owned.)

The “we all knew what we were doing and there was never going to be a problem because the Kiwibank ownership would be resolved before 1 July 2022” line just does not wash. A much more compelling story is that all involved were running with narrow legalistic interpretations – it was lawful, therefore just fine – and had lost any sense of the big picture around integrity and appearances of integrity. For some reasons – not really clear, although I’ve heard suggestions they are similar personalities – Orr wanted Finlay and nothing was going to stand in the way.

The story the Bank now spins about how “we were all doing the right thing but just couldn’t write it down, even in Cabinet papers” doesn’t stack up for a moment:

  • it is entirely inconsistent with the fact of the Secretary to the Treasury’s written apology
  • it is inconsistent with the account of that interview panel (and of Finlay’s non-disclosure of any conflicts)
  • it is inconsistent with the twin facts that (a) the Minister of Finance had to consult with Opposition parties on the appointment and b) that the appointment was disclosed on the RB website by the end of 2021 (even if no one much noticed then).  Had the true story really been “oh, we’ll have changed the ownership of Kiwibank by 30/6/22 so that NZ Post won’t own it by then” the commerical-in-confidence story would have prevented them giving an honest answer to any Opposition party that had been on the ball and asked about apparent conflicts, or the people like me and the journalists who wrote about the issue if we had picked it up earlier. 
  • there is no sign in any of the papers released of the Bank raising any concerns late in the piece as it became clear that the Kiwibank ownership situation would not be sorted out by 30 June 2022 (no sign eg of them urging the Minister to get Finlay to take leave of absence from the RB Board until it was sorted out).  All the signs are that they just did not care very much, if at all. It wasn’t unlawful, and if it wasn’t ideal it was still okay.  If there is evidence that this is not the correct interpretation they could readily have released it.

No, the decision to appoint Finlay back in October 2021 was clearly taken on the narrow basis that the law did not prevent Finlay being appointed even if he chaired the majority owner of Kiwibank.  And that reflects very poorly on everyone involved –  Orr, Quigley, Byres, Treasury and the Minister of Finance (and his colleagues).    It would not have happened in any moderately well-governed country, but it happened here, made worse by the refusal of the Reserve Bank (Governor and chair) to take any responsibility for an egregious misjudgment, the sort of defensiveness that feeds the slow corruption of the state.

Suppose that Finlay was really appeared like a potential star catch as a potential Reserve Bank Board member (not clear why he might but just suppose).  Suppose too that you (Governor, Minister, Board chair, Secretary to the Treasury) knew that negotiations were getting underway to get Kiwibank out from under NZ Post, and you thought those would be likely to be sorted out by mid 2022.  It would have been easy enough, and entirely proper, to have made an in-principle decision to appoint Finlay but to delay any consultation with the Opposition and any announcement until the conflict –  real and substantial –  was removed.  Perhaps that might have meant Finlay taking up his appointment at the Reserve Bank on 1 September rather than 1 July, and his services –  just another professional company director (as Treasury notes in that report “there were other candidates the Minister could have considered for the Reserve Bank”) – wouldn’t have been available to the Governor during the transition period.  It would have been a perfectly right and proper thing to have done.  But Orr –  and apparently Quigley, MacLeish, and Robertson –  just didn’t care.  In Orr’s case, still doesn’t it seems.  As so often with him, responsibility, contrition, and doing the honourable thing (doing, and being seen to do) count for little or nothing.  There are no standards, just the bare minimum of (inadequate) legal restrictions, and whatever he can get away with.

UPDATE 23/12:  The Bank has chosen very consciously to play silly games and to deliberately not provide any material re Finlay for the period prior to mid-October 2021, the period in which the selection, evaluation, assessment and recommendations to the Minister of potential candidates was taking place.  It is clearly the period they don’t want light shed on, and as would have been very clear from my earlier writings it was a period of considerable interest to me (and was explicitly covered in my original requests).  Accordingly, I have lodged a new request with the Bank for all material relevant to the selection, evaluation etc of Finlay and Pepper, for the periods up to mid-October 2021 in Finlay’s case and up to 30 June 2022 in Pepper’s case.  

For those interested in reading further, Jenee Tibshraeny had an article in the Herald this morning prompted by the OIA material in this post. including a brief and unconvincing comment from Finlay (the first we’ve heard from him I think).

Rodger Finlay

Michael Reddell Reserve Bank Board, Rodger Finlay, Treasury

If you have long since lost interest in my series of posts as to how Christchurch company director Rodger Finlay came to be appointed by the government as a director of the Reserve Bank (in its new governance model where the powers, including bank regulatory ones, rest with the Board) while, it was envisaged, he would keep on as chair of NZ Post, the majority owner of a bank (Kiwibank) the Reserve Bank prudentially regulates and supervises, and the spin around it, feel free to stop here. The title of the post was due warning. But sometimes you have to see things through to the end.

A couple of weeks ago, I wrote here about (and excerpted) The Treasury’s incident report about the Finlay affair, and specifically the events that led to the Secretary to the Treasury providing a written apology to the Minister of Finance for the failure of her staff and organisation to explicitly draw to the attention of ministers the conflict of interest issues around Finlay’s appointments, either when he was being appointed to the Reserve Bank Board a year ago, or when Cabinet was agreeing to his reappointment as chair of NZ Post in June this year.

Yesterday I had two more OIA responses. Appointments to SOE boards are on the joint recommendation of the Minister of Finance and the Minister of State-owned Enterprises, and I had asked both ministers for material relevant to Finlay’s NZ Post reappointment (and withdrawal from that post) in June. Megan Woods had been the SOE minister responsible, but she apparently declared a potential conflict of interest, around her personal and professional relationships with Finlay, and so formal responsibility was shifted to Kris Faafoi (as it turned out, by the end of this he was in his last few days in office). Faafoi having left office, his papers on the issue are coming only slowly (early next year I’m told) but The Treasury did yesterday release the papers they had relevant to the appointment process Faafoi was involved in.

Treasury OIA response re acting Minister of SOEs and reappointment of Rodger Finlay as NZ Post chair Oct 2022

and Grant Robertson also provided his response to a similar request, but which also covered contacts with journalists on the Finlay appointments.

MoF OIA response re Rodger Finlay and the NZ Post board Oct 2022

In total there is about 50 pages of material

Taking the Treasury response first, there isn’t a great deal that is new.  The relevant paper to the Cabinet Appointment and Honours (APH) Committee is included in full.  It doesn’t note any conflict of interest issues (but we knew that from the Secretary to the Treasury’s apology and their report) but their description of NZ Post itself is a little surprising.

with no mention that NZ Post is also the majority owner of the 5th largest bank in the country.

I was slightly amused by what was, and wasn’t, kept secret about Finlay’s personal details

and the fussing around in the paper about whether the board was going to be suitably “representative”

But perhaps the point of substance was an email to Treasury officials from Faafoi’s private secretary on 8 June after the APH meeting noting that “Finlay’s reappointment went through APH today with no issues”.

While The Treasury had clearly been remiss in not including the conflict of interest issue in the papers, quite where were ministers (whether those proposing to make the appointment – and especially Robertson – or those deliberating on it)? Did it not occur to any of these people – either then, or when the RB Board appointment was made – to question whether it was really quite right to have someone responsible for bank regulation also chairing the majority owner of a bank. It is hardly as if Kiwibank’s ownership was a secret, and the APH paper does note that Finlay had been appointed as a Reserve Bank Board member (and from the Robertson bundle of documents we find talking points The Treasury had prepared for Faafoi, one (of a handful) of which explicitly states that he has been appointed to the Reserve Bank Board)? Or do conflicts of interest, real or apparent, just not matter to this government?

Most of the interest in the Robertson bundle is in the exchanges by members of his staff with various journalists about the Finlay issue.

But there is also an email exchange on 10 June, the day my first post on the Finlay issue appeared. We know from The Treasury’s incident report that prior to 8 June (the day of the APH meeting) Finlay had approached Treasury suggesting that he could take leave of absence from the NZ Post role until the (then not known to the public) reshuffle of Kiwibank ownership went through – it had initially been planned, so the documents show, to have had this reshuffle wrapped up by 30 June).

Anyway, on 10 June my post went out at about 8:30am (it is in my email inbox at 8:32) and at 9.34am Finlay himself sent a link to the post, without further comment, to four Treasury and NZ Post addressees. At 3:21pm, Treasury is emailing people in the relevant ministers’ offices, cc’ing the NZ Post people

I found it interesting that the official states “This potential concern has been on our radar” – what, just waiting for someone (whether me or another observer) to notice the egregious conflict involved in having the chair of the majority owner of a bank sitting on the governance board of the bank regulator? And so they suggest rolling out what Finlay himself had proposed – that he temporarily step aside from the NZ Post role – and had gone far enough to get the agreement of another director to act in Finlay’s place if ministers were to go with this option.

But that didn’t happen. The Treasury report says Finlay himself called the Minister of Finance, and the Minister took the view that as the potential conflict had been considered when the initial (RB) appointment was made and nothing had changed, there was no reason for Finlay to stand aside. Except, of course, that we know that the advice to Ministers and Cabinet in late 2021 had not mentioned the conflict, and neither had the advice to other political parties when, as the RB Act requires, they were consulted on Finlay’s RB appointment.

It is also pretty extraordinary – and this isn’t picked up in Treasury’s report – that there was no sign that these Treasury officials (or perhaps Finlay) really recognised the character of the Finlay conflict. He could have temporarily stepped aside as NZ Post chair and would still be responsible for bank regulation and supervision around Kiwibank during that period, and almost all regulatory decisions have effects longer than a few months standdown might imply. To address the conflict by means of temporary stand-down it would have to have been the Reserve Bank Board he stood down from, but the Reserve Bank role isn’t even mentioned here, and nor were Reserve Bank officials copied on the emails from either Finlay or Treasury.

And so Cabinet went ahead and on 13 June reappointed Finlay for three years. And on 14 June Finlay wrote declining the appointment.

The first journalist to have asked Robertson anything about the Finlay issue was the Herald’s Jenee Tibshraeny.

At the time of this phone call and email, it was full steam ahead. Cabinet had approved Finlay’s reappointment and the letter of offer was going out.

It took the best part of two days, and multiple reminders, to get an answer out of Robertson.

The delay was convenient as by this time – and against the wishes of the Minister – Finlay had stepped aside, and finally personally resolved the conflict issue. Against that backdrop, the Minister’s answer to the Herald was pretty much active and deliberate disinformation.

The next lot of media inquiries worth mentioning was on 1 July (the day after the rest of the new Reserve Bank Board was announced, including reference to Finlay as “previously” chairing NZ Post. Stuff’s Rob Stock asks Robertson’s senior press secretary

Who, in a series of email exchanges also engages in an active attempt to put the journalist off the trail (pretty sure the government would call this “disinformation” if anyone else was doing it).

First, the Minister was sick and couldn’t comment, but there was no news because Finlay’s term was due to end on 30 June. Stock responds that he didn’t recall either the RB, the Minister or Finlay “mentioning this was the plan for managing the conflict”, to which Bramwell responds disingenuously “I’m not sure if it was the ‘plan’…..you’d have to talk to Mr Finlay about that – or perhaps the RBNZ?”. Stock immediately responds (presumably of attempts to get others to comments) “No comment, not available, talk to Minister”. Whereupon Bramwell (for the Minister) again avoids answering the actual question with this response

Stock must have given up at that point. But if Bramwell’s last response was a non answer, it was nonetheless interesting since (a) it points us to Reserve Bank involvement in the political spin, and b) tells us that the Bank concedes that there may well have been “material conflicts of interest” from 1 July had the government gone ahead with its plans and Finlay not, at the end, done the decent thing.

There is a final rounds of exchanges between Tibshraeny and Robertson’s office at the end of August. These requests came after some earlier OIAs had begun to shed more light. You can read the exchange for yourself. On Finlay, the key question is “How was it ever ok for Rodger to be NZ Post chair and on the new RBNZ Board at the same time? [as the government deisred and intended]. Even [if] this would’ve been within the law [which it was] it surely would not have been within the spirit of the law”. There is never a straight answer from the Minister, just a deflection to the Reserve Bank who, she was told, concluded that “any conflict of interest…could be managed”.

Tibshraeny’s final question is about an issue I was not aware of until she identified it: that Finlay is a director of Ngai Tahu which now owns a 24.94% stake in Fidelity Life Assurance, an insurance company regulated by the Reserve Bank. That deal was not settled until early 2022 but had been agreed on before Finlay was appointed to the Board (and “transitional board”) late last year. That appears not to have been disclosed or discussed when his appointment was made. In Tibshraeny’s final email she notes “So, not great…..”

There have been so many issues to keep track of – including the other new director who when appointed was also on the board of an insurance company that for some reason was not regulated by the Reserve Bank (before there was a belated rethink and he resigned from the insurance company board) – and the Fidelity stake isn’t controlling so that on its own I can’t get too excited about it. But it does tend to speak to a pattern – running across all those involved here – that all that matters is the letter of the law, and nothing at all about the appearances, and the potential for actual or apparent conflicts. Finlay should, right upfront, have identified both the Kiwibank and Fidelity stakes as potential conflicts – and should never have put himself forward if he intended to stay on at NZ Post. In combination, they should have been disqualifying – to The Treasury and to Ministers.

As far as I can see no one emerges very well from this whole saga, with some slight brownie points to Finlay who did after all finally step aside. The Treasury did poorly, perhaps so too did their recruitment consultants, the Brian Roche interview panel (for the RB roles) did really poorly (and that includes the head of APRA who sat on the panel), ministers did poorly (Grant Robertson most of all). No one called stop at any point, and all seemed to be focused (if at all) on the letter of the law rather than the substantive issues that mean it would not be acceptable anywhere to have as director of the bank regulator the chair of a majority owner of a bank.

But if any of these people or groups of people should have stood up and called a halt (before Finlay finally did), so too (and perhaps above all) so should the Governor of the Reserve Bank. the chair of the Reserve Bank Board, and all their attendant senior managers and Board colleagues. Every one of them should have known the conflict was untenable and unacceptable (it was the immediate reaction of a whole bunch of former central bankers after my first post appeared), and quite damaging to the credibility of the institution.

But if you have been following this story since June, you may have noticed that there have been OIA responses, fairly timely ones, from the Minister and from The Treasury, and nothing at all from the Bank (just references to them and their involvement in some of the other documents). It isn’t for want of trying.

On 1 July, the day after the full Board was appointed, I lodged with the Reserve Bank a request for

…copies of all material relating to appointments to the new Reserve Bank Board, including all material relating to appointments to the “transition board”. 

Without limitation, this request includes all papers and other material generated within the Bank (other than of a purely administrative nature), any advice to/from or discussions with The Treasury, and any advice to and interaction with the Minister of Finance or his office on these issues.

It was directly parallel to similar requests lodged with the Minister and with The Treasury (both of whom responded substantively).

On 13 July, one of the many communications staffers got in touch to tell me

We have transferred your request to the Treasury as the information is believed to be more closely connected with the functions of the Treasury. In these circumstances, we are required by section 14 of the OIA to transfer your request.

You will hear further from the Treasury concerning your request.

I rolled my eyes – it was evidently a ploy (note I explicitly asked about material generated within the Bank, which other agencies would not necessarily be expected to have) and no doubt the Bank knew by then of my other requests – but did nothing more while I waited for responses from the Minister and The Treasury.

Having received those responses, on 3 September I went back to the Bank to renew my request (all on the same email chain, so there was no ambiguity about what the request was)

I am writing to renew my request.  You transferred the request to The Treasury, but (as I’m sure you know) their release provided nothing on anything the Bank, its staff or management, Board or “transitional board” members said, wrote or did.  I now know from the responses to similar OIAs to The Treasury and to the Minister of Finance, that the Board chair was involved in the selection of new board and transitional board members, Rodger Finlay (then a “transitional board” member) served on the interview panel for the second round of Board appointees, that RB legal staff had discussed issues around potential conflicts of interest for Rodger Findlay.    Against that backdrop (and the media coverage of the Findlay situation in late June), it is inconceivable that there were no papers, emails or the like on any matters relating to the selection and appointment of Board members, whether or not such material was conveyed to The Treasury or to Minister.

That was almost two months ago. It was only yesterday I thought to check up on it and have sent them a note pointing out that I did not yet appear to have had a response. It increasingly appears as though the request will have to be referred to the Ombudsman.

But no doubt the Governor and his colleagues will keep on with the spin about being a highly transparent central bank. At this point, you really wonder what they can have left to hide, but perhaps the secrecy and obstructiveness is just some point of unprincipled principle?

UPDATE: About 40 minutes after this post went out I had an email from the Reserve Bank offering what appears to be a fairly abject apology for allowing this request to have fallen through the cracks, promising process improvements etc. Accidents happen, system aren’t foolproof (even with 20 comms staff), so I am inclined to take them at their word, but I guess it means I might finally get a response by Christmas.