Rodger Finlay

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.

Rodger Finlay: The Treasury’s incident report

Regular readers will recall that since June I’ve been on the trail of events surrounding the appointment of Rodger Finlay as, first, a “transitional board” member (attending actual Board meetings) and then a full Reserve Bank Board member, at the same time that he was chair of NZ Post, the majority owner of Kiwibank, an entity subject to Reserve Bank prudential regulation and supervision. From 1 July, the new Reserve Bank Board had legal responsibility for all the powers the Reserve Bank had on prudential policy and implementation. Finlay’s term as NZ Post chair was due to expire on 30 June, but processes were in train that saw Cabinet reappoint him on 13 June.

The most recent post was here. The story gets a little complicated, and there have been various documents (from the Minister of Finance and from The Treasury), and comments from the Minister or his office reported by the Herald. From that 31 August post

In the earlier documents, it was noted that the Secretary to the Treasury had asked for a report from her staff as to what had happened, how, and what if any process changes needed to be made. That report was released to me this afternoon and is here.

Treasury incident report on Rodger Finlay conflicts and appointments

This was the first stage

It reflects very poorly on The Treasury staff concerned (Treasury is after all responsible for monitoring reviewing the Bank), the Reserve Bank Governor and Board chair (who seem to have been more interested in some legalistic narrow definition than in either appearances or substance), and the interview panel, including the head of the Australian Prudential Regulatory Authority who, if the issue came up as Brian Roche says, should have been making the point that it should be unacceptable to have the chair of the majority owner of a bank sitting on the board of the prudential regulatory authority.

As I’ve noted before, it reflects poorly on Finlay too, who signed an application stating that he had no conflicts.

Treasury goes on to note that they did not advise the Minister of the potential conflict issue so that he could make his own informed choice, and nor were other political parties (who had to be consulted) advised.

They go on to note that in the process of planning to reappoint Finlay as NZ Post chair (a process that ran for some months) the issue of the potential conflict was also not advised to ministers.

And then we get this

I guess it is encouraging that Finlay belatedly raised the issue, even if he then let the bureaucrats convince him there wasn’t an issue.

Then there was this

From context, Project K is clearly the scheme to have the Crown buy out the existing (Crown bodies’) shareholdings in Kiwibank. Again, it is perhaps encouraging that Mr Finlay again broached the issue of potential conflicts. It also makes sense of this from the minutes of the RB “transitional board” on 9 June (which I had been puzzling over).

and the story rounds off here (Cabinet having made the NZ Post appointment on the 13th)

Which, as these things seem so often to do, again sheds particularly poor light on Grant Robertson as Minister of Finance, who was apparently totally unbothered by the actual or perceived conflicts even when Finlay himself had raised the issue – not even to accept the offer from Finlay to stand down from NZ Post until the Kiwibank deal was resolved (although as the RB was the regulator, if he was really serious he should have sought to take leave from that Board).

The report sums up

All of which is no doubt true, but it isn’t only (or even primarily) The Treasury’s reputation that should have been damaged by this (even if I now look on Finlay himself a little more charitably).

Anyone interested can read the rest for themselves, including the multi-page note on process improvements.

UPDATE:

It also reflects poorly on Robertson that (extract from my previous post) it is pretty clear that he actively misrepresented the situation to the Herald’s journalist.

Finlay, the RB Board, and related matters

The Herald’s Jenée Tibshraeny had a follow-up piece this morning on the Reserve Bank Board, with some interesting new information and (what appears to be) some ministerial spin and simply avoiding straight answers.

First we learn that Byron Pepper, appointed to the Board in late June, has now stepped down from his position as a director of an insurance company (Ando) that – by the vagaries of the details of the insurance legislation – is not an institution regulated by the Reserve Bank but is nonetheless substantially owned by another insurance company which is regulated, and which provides insurance on behalf of that regulated company. Again, it wasn’t illegal for Pepper to have held those two roles simultaneously, but it was quite improper, and it reflects poorly on him, on The Treasury (which made the appointment recommendations), on the Bank (Governor and key Board members), and on the Minister of Finance that it was ever allowed to happen. Reading again through the OIA papers I got back from Robertson the other day, it appears that Rodger FInlay was on the interview panel……so perhaps we should be less surprised. It is as if they have no sense of ethics, or of conflicts of interest in any sense other than the narrowly legal.

We don’t know whether Pepper jumped (volunteered himself to step down from Ando having thought again and realised it was a very bad look for an honourable person) or was belatedly pushed (by the Minister of Finance, Orr/Quigley, or The Treasury). My money would probably be on the Minister and the Beehive but if the conflict should never have been allowed to have arisen, at least it has been sorted out.

The sheer spin comes regarding Finlay.

Here is the timeline we know:

  • back in May 2021, Finlay put himself forward for appointment to the Reserve Bank Board (that is when positions for the Transition Board and the real thing were advertised).  He was chair of NZ Post then, it owned a majority of Kiwibank then.   From the documents Robertson released, we know he then signed a conflict of interest declaration stating “I can confirm that at the time of any Reserve Bank appointment I would not have any relevant conflicts of interest”.
  • In October 2021 Cabinet agreed to appoint him to the full Reserve Bank Board from 1 July 2022, and noted that the Minister had appointed him to the “Transition Board” (formally, as a consultant to the Reserve Bank during the establishment period prior to 1 July 2022).
  • No political parties raised any objections when they were consulted, as the new law required for Board appointments.
  • During the period of the Transition Board, Finlay was participating regularly in meetings of the then Reserve Bank Board.
  • On 8 June 2022, Cabinet’s Appointments and Honours Committee considered a paper recommending Finlay’s reappointment from 1 July 2022 as chair of NZ Post
  • On 10 June I wrote a post describing as “highly inappropriate” Finlay being both a board member of the prudential regulatory authority and the chair of the majority owner of Kiwibank, 5th largest bank in the country.
  • On 13 June, Cabinet approved the reappointment of Finlay as chair of NZ Post from 1 July 2022.
  • On 13 June, according to her piece, this morning, Tibshraeny asked Robertson’s office whether Finlay’s NZ Post terms would end on 30 June 2022 (which the existing term did). Her earlier reporting suggested she had been told – either by Robertson’s office or NZ Post – that FInlay’s term was ending on 30 June.  (Those messages, highly misleading as it turns out, somewhat allayed her concerns at the time, and mine.)  
  • On 21 June, Tibshraeny’s first article on the issue appeared.
  • On the same day there is a substantive email (reproduced in my previous post) from a ministerial adviser noting media concerns,and noting what were (at very least) process weaknesses, while also noting (it seems) that it had been hoped that the Kiwibank ownership restructuring would have been sorted out and that any conflict would have gone away.
  • On 22 June, there is a letter (again reproduced in my previous post) from the Secretary to the Treasury to the Minister of Finance apologising that nothing about the actual/potential conflict of interest had been drawn to the attention of ministers either when Finlay was appointed to the Bank role (last year) or when reappointed to the NZ Post role (a week earlier).  There is no hint in that letter that the Finlay NZ Post appointment was not proceeding, McLiesh simply noting that she understood the Minister would provide the relevant information at APH that same day.
  • By 1 July, Finlay was no longer showing as Board chair on the NZ Post website.

In Tibshraeny’s article she reports these comments from Grant Robertson

finlay

No thinking person should take this as a serious response.

We don’t know quite how many days RB Board members are expected to spend (my guess perhaps 25-30 a year) but it is hard to believe he had suddenly discovered it was going to be an unusually large commitment, especially as he had already spent 9 months actively engaged in the establishment phase and had served on various other public and private boards (and he was just an ordinary Board member, not holding the more time-consuming role of chair).   And had he had any doubts any serious figure would have resolved them in his own mind before allowing his name to go forward for reappointment to the NZ Post chair role.  As late as 22 June, he had been appointed by Cabinet (presumably his NZ Post Board and management colleagues had been told), and people from the Secretary to the Treasury down were still working on the basis the Post reappointment was going ahead.   But by 1 July it wasn’t a thing.

I suppose it is always possible that (say) a serious family health emergency arose in those few days that meant he had to consider all his business and professional commitments……but (a) it appears that the NZ Post role (the one involving a serious conflict) appears to have been the only one given up, and (b) it would be quite straightforward to let something like that be known (and we’d all sympathise).  But the article goes on “Finlay hasn’t responded to the Herald’s requests for comment”.  That’s telling.

Most likely the Beehive jettisoned him at the last minute, realising that with media coverage and serious concerns being expressed by various senior figures, it was just a dreadful look heading into the new RB Board regime – when the new the rest of the Board they’d soon be announcing were in any case likely to be attacked as underqualified – and not worth going ahead with the Post reappointment.  I’ve lodged fresh OIAs with the Ministers of Finance and State-owned Enterprises to see if we can learn more.

(One might wonder, if the Beehive story is correct, why they jettisoned him from the NZ Post role rather than the Reserve Bank one.  Perhaps they reckoned it would be easier to find just another professional director for NZ Post – although none yet seems to have been appointed – plus his current term was actually expiring on 30 June.  They probably hoped to get away without people realising they’d reappointed him just a few days previously.   But don’t overlook also that if Finlay seems like a no-better-than-adequate appointee for the Board of the central bank and regulatory authority, the OIA papers make it clear how much difficulty Robertson and The Treasury had had in finding anyone half-qualified to serve, and Finlay is described on several occasions as the best on offer.)

A few other points caught my eye reading through again the OIA I received.

Treasury used two quite separate interview panels for appointing RB Board members.  For the second wave, it was mostly Treasury and Reserve Bank people doing the interviews (including Finlay himself).  But for the first round (where Finlay was chosen), they used a fairly high-powered panel, chaired by government favourite Brian Roche.

Among the interview panel was the Secretary to the Treasury. I was astonished to find that (so Treasury reported) she was on the panel because the Governor had asked for her to “reflect the seniority of the positions” (shame about that looking at what we ended up with), and “to provide gender representation”.  Poor her, picked for purely tokenistic reasons.

But what really caught my eye was the presence of the head of the Australian Prudential Regulatory Authority, Wayne Byres, on the interview panel.   Frankly, that seemed a little odd, for several reasons.  First, one of the main relationships the Reserve Bank has to manage is that with APRA, and there will often – particularly at times of stress – be conflicting national interests.  Second, APRA doesn’t operate with a part-time non-executive board (the sorts of role this interview process was selecting).   But more generally, APRA is a pretty well-regarded organisation, and one might have hoped that having him on the panel would ensure at least one “adult in the room”, who really knew his stuff on the prudential side of what the Bank Board would be responsible for.      And yet there is no sign that Wayne Byres, chair of a well-regarded prudential regulatory agency, had any qualms about appointing to the board of the prudential regulator, the chair of the majority owner of the 5th largest bank in the country.     If he knew, did he really not care (there is no hint in any report to the Minister of any concerns being raised), and if he didn’t, how can it be that Treasury (providing the Secretariat to the process) or the Bank did not tell him?   I suppose the head of APRA doesn’t need to know much about NZ-only banks, but it seems like a failure all round (including on his part, as the most prudential governance attuned person in the room) not to have found out, not to have raised concerns.

And finally, the saddest thing about reading through the OIA papers was the gradual diminution in ambition as (presumably) it became clear that (a) it was getting really hard to find any capable people even willing to put their names forward, and (b) that the government/Minister just didn’t really care about the substance at all.

In what comes of not tidying one’s desk very often, I noticed a weathered copy of the newspaper advert from April/May 2021 for directors (transitional and permanent) sitting by my computer.  Among the things they were looking for were these

board advert

Good stuff you might say. 

But by February, from a report to the Minister they were reduced to this

Feb Board

and by April, as they were closing in on the final list of those who were actually appointed, we get this summary

april board

Perhaps a bit overqualified for a high-decile school board of trustees, and touching all sorts of political bases, but with no sign that any of them meet those ambitious “domain experience” goals once so prominent in their advertising. Oh, and no sign of any who are “visionary and influential with an international perspective and an awareness of global trends relative to the Bank’s operating environment and mandate”. The least underqualified would be the chair, but he was appointed only for a transitional two-year term. Here I might briefly disagree with Tibshraeny, who describes Finlay and Pepper as the two Board members with “the most experience when it comes to financial policy”: in fact, although both have worked in financial institutions, neither has any apparent background in prudential or related policymaking, financial stability etc, at all

As for “strong ethics” and “experienced in managing conflicts of interest” we ended up with two directors appointed who had clear and evident ongoing conflicts of interest, one of whom was involved in selecting the other. Are these really fit and proper people to be regulating and holding to account financial institutions (and those who run them), let alone the Governor? (And as a reminder, the Board is responsible for appointing and holding to account the Governor and the Monetary Policy Committee: they appear woefully underpowered when it comes to either aspect of their role.)

Then again, neither the Governor, the chair of the Board, the Minister of Finance, the Secretary to the Treasury, nor the Treasury staff charged with doing the donkey-work and actually managing these processes, seems to have seen any problem. Those asked don’t seem interested in straight answers or accountability either. And that should be even more concerning, as a reflection of what public life and governance in New Zealand seems to be becoming like.

Rodger Finlay revisited (2)

Further to my post this morning, I’ve read a few more of the papers a bit more carefully.

It is still clear that when Rodger Finlay was appointed last October to the “transitional board” of the Reserve Bank and (from 1 July 2022) to the full Reserve Bank Board that no one (Treasury, Reserve Bank, Minister of Finance) seems to have been bothered by the stark conflict of interest between his twin roles as NZ Post chair (majority owner of 5th biggest bank in New Zealand) and the proposed role on the Board of the prudential regulatory authority. Any conflict was sufficiently unimportant (in the eyes of officials) that discussions were not documented, and ministers were not even advised of the issue in the relevant Cabinet and Cabinet committee papers.

To be fair, at that point it appears that Finlay’s term as NZ Post chair expired in the first half of 2022. But there seems to have been no discussion as to whether he would be reappointed, presumably because no one was bothered about the conflict. That reflects poorly on all involved – Treasury and Reserve Bank officials (junior and very senior), the chair of the Reserve Bank Board, Grant Robertson, and of course Finlay himself. A fit and proper person for the Reserve Bank Board role – the standard regulators apply to private sector appointees – would have immediately recognised the conflict (real and apparent) himself and made it clear that he could do one or other role but not both. Oh, and as I noted this morning, none of the other parties in Parliament raised any objections, or asked any questions, when Robertson consulted them about the RB Board appointment (as his new legislation required him to do).

I wrote my first post on the Finlay issue on 10 June 2022. It was the first piece drawing attention to the issue.

But it turns out that on 8 June 2022, Finlay’s reappointment as chair of the NZ Post board had been considered at the Cabinet’s Appointments and Honours Committee. His reappointment was confirmed at the full Cabinet on Monday 13 June 2022. In other words, just three weeks before the new Reserve Bank Board took office (and legal responsibility for bank supervision and prudential regulatory policy). And again, (other) ministers were not advised of the conflict (not even to note that a potential one had been recognised and arrangements were in place to manage it).

By this time, I’d had numerous emails from former senior central bankers astonished that the government was putting the chair of Kiwibank’s majority owner on the Reserve Bank Board. But apparently no ministers were at all bothered, as the reappointment to the NZ Post Board from 1 July 2022 was confirmed.

We know all this because a week or later there is a letter of apology from the Secretary to the Treasury to the Minister of Finance.

We know the reappointment was done on 13 June from this extract from a Cabinet paper from the acting Minister of State-Owned Enterprises

Poor Cabinet members. (Perhaps some should read my blog).

It does get worse. A journalist at the Herald had got interested in the story, and her story on Finlay ran on 21 June. For that story, she had asked around and had been told that Finlay’s term as chair of NZ Post was ending on 30 June 2022. As her story noted (and as I and other accepted) if so that made the situation less bad than it had first appeared, since although Finlay would have been on the transition board (and attending real RB Board meetings) while also chair of NZ Post he would not in fact be in both substantive roles at the same time.

That looks a lot like an active attempt by someone to mislead, since Finlay’s reappointment as NZ Post chair had been signed off by Cabinet on the 13th.

In the end it may be that what happened was more slipshod than a total abandonment of standards. That is suggested by this email dated 21 June (the day the Herald story appeared).

It seems likely, after last week’s announcement, that the redacted passages refer to the restructuring of the ownership of Kiwibank. After that restructuring is completed, and the Crown becomes the Kiwibank owner directly, there would be no conflict of interest between positions on the NZ Post and Reserve Bank Board. But that restructuring was only finally announced in mid August.

Slip-ups happen, but we should not skate over this one too quickly: Finlay’s reappointment to the Post position had occurred just a few days previously when presumably all involved at Treasury (and in the relevant ministers’ offices) knew that the ownership restructuring was not anywhere near announced, let alone done. That they failed to discuss the issue among themselves, that key figures failed to alert ministers and ministers to alert Cabinet, seems just consistent with the slack approach that had been taken on Finlay’s conflicts right back to October 2021. We don’t know whether the Governor knew of the Kiwibank ownership reshuffle plans, but either way there was still an onus on any Governor at all serious about avoiding actual or perceived conflicts, in the shiny new governance model, to have stamped his feet and insisted that Finlay’s situation be resolved. And, of course, there was Finlay himself – who, as far as we know, neither expressed nor felt any concerns.

The evidence suggests that sometime between 22 June and the end of the month Roger Finlay’s reappointment as chair of NZ Post was reversed. Perhaps ministers came to their senses and insisted on a rethink. Just possibly Finlay chose to stand down (the former seems more likely, since it is likely that the Herald story was the first time other ministers (including the PM) and their political advisers became conscious of the conflict issue, while Finlay had known of it for many months). In any case, by 1 July 2022, Finlay was no longer showing on the NZ Post website as board chair.

It all ends less badly than it might have, but it really should not be an acceptable standard of conduct from the Secretary to the Treasury, the Governor of the Reserve Bank, the Minister of Finance, or (now making regulatory policy including on fit and proper people in regulated institutions) Rodger Finlay. The twin appointments were never illegal (but should have been) but simply not being illegal does not make behaviours or appointments not improper. It is hard to think of any serious central bank anywhere where the possible twin government appointments (chairing the owner of a bank and serving on the regulatory authoritiy board) would be treated in such a slack and cavalier way.

Rodger Finlay revisited

This short post is mainly for those readers who don’t follow me on Twitter.

You may recall that a couple of months ago I highlighted as being highly inappropriate the appointment to the new board of the Reserve Bank (and the establishment “transitional board”) of Rodger Finlay, who was also chair of the state-owned enterprise New Zealand Post, which in turn was the majority owner of Kiwibank, the 5th largest bank in New Zealand.

The appointment was not illegal – itself a serious weakness in the new Act – but was clearly highly inappropriate in that the new Board was picking up responsibility for prudential supervision, most notably of banks.

When a couple of journalists got interested in the story, we were given to understand that Finlay’s term as chair of NZ Post would expire on 30 June 2022, and as the new Board only took legal responsibility for the Reserve Bank from 1 July 2022, that seemed to allay at least some concerns (about the situation looking ahead), even though it was clear that Finlay had been fully and extensively engaged with the activities of the Bank and the old Board during his “transition board” term, while serving as chair of Kiwibank’s majority owner,

Later that month, the rest of the appointees of the new Board were finally announced. It was a seriously underwhelming group of people, few of whom came anywhere near the sort of standard one should expect on the board charged with such considerable powers, including around the appointment and review of the Monetary Policy Committee. I lodged various Official Information Act requests for background material on the Board appointments, and this morning got back a (long) response from the Minister of Finance.

There might be a fuller post at a later date, but skimming through the documents, this succession of tweets (typos and all) captured the initial concerning aspects I spotted.

The key concern, at least to my mind, is that the papers make it clear that it was always intended that Finlay would continue serving as NZ Post chair (owner of Kiwibank) even once the new RB Board, on which he was serving making regulatory policy, took formal office, and that those who asked about this appear to have been actively misled.

It is concerning that this conflict was never drawn to the attention of Cabinet members considering the appointment, but that process failure itself appears to be primarily a reflection of the deeper problem that neither The Treasury nor the Reserve Bank appear to have considered the conflict to have mattered, either substantively or in appearance terms. There is text in the OIA release suggesting that Treasury and RB staff had discussed the matter at an early stage, but it doesn’t appear to have been treated very seriously in that there was no file note or record of those discussions kept, and no evidence of any discussion of the issues or risks with the Minister. The papers suggest they were having a great deal of difficulty getting able people to even consider appointment, and perhaps that meant standards slipped. They shouldn’t have.

Finally, one of the things that has interested me about the new RB legislation was the addition of the requirement that other parties in Parliament be “consulted” before Board appointments (including of the Governor) are made. In the release, there is a record of letters of consultation being sent to the other parties in Parliament. Sadly, there is no sign that any party raised any concerns about the Finlay appointment even though his chairmanship of NZ Post was explicitly mentioned in each of the consultation letters. I’ve been sceptical that the consultation requirement would mean anything much in practice, but it is sobering that no other party even appears to have raised the conflict of interest issue re Finlay, even when the letter was right in front of them. (For the record, National and ACT did send brief responses back to the Minister raising concerns about the later block of appointees announced in June.)

UPDATE: A further post on the same issues.

Consulting on the Remit

The Reserve Bank Monetary Policy Committee works to a “Remit” set down for them from time to time by the Minister of Finance (the current one is here). It is a different (and better) system than the previous approach of Policy Targets Agreements between the Governor and the Minister, and in particular makes it clear (as is appropriate in our system of government) that the (elected) Minister and government set the targets for monetary policy, while the MPC is the accountable (at least on paper) body responsible for setting monetary policy to deliver the government’s goal.

Under the Reserve Bank Act the law now reads

And several weeks ago the Bank kicked off the first stage in a consultative process designed to inform the advice they will eventually provide to the Minister of Finance. If you want to have a say, submissions close next Friday (15th).

Consultation with the public (of some sort or other) is required by law.

The idea of this sort of five-yearly review appears to have been drawn from the Canadian process, where in the lead-up to the five-yearly review of their inflation target the Bank of Canada has done a huge amount of analytical work reviewing the issues and options. Now, Canada is a much bigger country than New Zealand – but it is still one country, with its own set of specific experiences and issues – but the range of material they have put out, and research they have undertaken, is typically very impressive. Here is the link to the most recent review, and here specifically the link to the 24 formal research papers.

By contrast, what we have seen so far from the Reserve Bank of New Zealand is a pale shadow. There is a 60 page document, but lots of graphics, but there is no fresh analysis or research at all. It is possible that this first round consultation is designed simply to draw out the questions people think should be looked at more closely, but even if so that doesn’t leave much time before the second stage of the consultation is due (I think they said October or November). It really doesn’t look as though they have in mind doing much, if any, fresh research, whether commissioned or by their own staff. Against the backdrop of some of the biggest disruptions to monetary policy in the 30+ year history of inflation targeting, that suggests a lack of real seriousness about the review. Perhaps the Minister has already suggested (see 5(2)(c) above that he isn’t interested in much, but there is no hint in the document of such an external constraint. It has the feel more of the diminished Reserve Bank we’ve seen over and over again in the last few years – little published research, weak senior appointments (remember the marketing executive now responsible for macroeconomics, monetary policy and markets), and resources spent on (eg) comms staff, “stakeholder liaison”, and climate change, rather than on core areas of Bank responsibility.

As the review of the Reserve Bank legislation has proceeded I’ve observed on a number of occasions, including in submissions to FEC, that there are aspects of the new legislation that are a mess. The Remit review process, especially coming against the backdrop of the new Board announced last week, helps illustrate some of the problems.

Who is responsible for this Remit review advice? Why, “the Bank”. And “the Bank” here clearly does not include the Monetary Policy Committee, since (as you can see in the extract above) “the Bank” is required to consult the MPC before the advice is given to the Minister. And “consult” (standing alone) is about as weak as legislation gets: you can see by contrast that ‘the Bank’ is required to “consult and have regard to” (a materially stronger standard) the views of the public.

It is simply weird. We have a dedicated Monetary Policy Committee responsible for the formulation of monetary policy and working to carry out the current Remit, but they are treated (by the legislation) as distinctly marginal to the entire review process. There is no obligation on them to provide analysis and advice to the Minister, and “the Bank” is not even required – although it may choose to – to have regard to comments the MPC members might have on “the Bank’s” proposed advice or analysis.

Now, of course, the MPC is dominated by management anyway (the law requires a majority of executive members, each of whom owe their position. departmental resources etc to the Governor) but there are the three external members, and on a good day the Minister and The Treasury will try to tell us they have a valuable contribution to make to the monetary policy formulation process (on other days, the Minister will repeat the blackball he and Orr and Quigley put in place whereby anyone with current or future expertise and research agendas in areas relevant to monetary policy is automatically disqualified from serving on the MPC).

By construction, management always has the numbers so long as they stick together, but wouldn’t a much more sensible approach to have been to have made the MPC responsible for the Remit advice to the Minister, drawing on expertise and perspectives from both staff and outsiders?

The current structure seems especially problematic when one remembers who “the Bank” is. Until last week, unless otherwise stated (ie around the MPC) it was the Governor. But now it is the Board – the same Board of ill-qualified, in some cases conflicted, people I wrote about last week. Not one of the non-executive members of the Board has any experience or demonstrated expertise in monetary policy or macroeconomics. I guess in reality they will delegate it all to the Governor….but delegating such a major issue (or just putting it through the Board with no serious scrutiny or discussion) makes a mockery of the new governance structure.

(Amazingly, if the Minister – this one or a new one – wishes to change the Remit, the law requires consultation (but not “have regard to”) with “the Bank” but not at all with the MPC, who really do seem to be there mainly to make up numbers and eat their lunch (creating in 2018 the illusion of reform over the substance).)

As I noted earlier, there was no fresh analysis or research in the consultative document. What particularly caught my eye was that there was no attempt at a rigorous or systematic review of how monetary policy has been conducted, under the current Remit, in the last 2.5 turbulent years, in which the Bank has run up massive losses and seen (core) inflation blow out. I attended an online consultation session a few weeks ago and I raised this with staff. They told me that there is such a review underway, and they will even have it externally reviewed, but observed that they could not promise it would even be available before the next round of consultation on the Remit advice. That seems far short of adequate, even if your prior is (as mine currently is) that the specification of the Remit probably doesn’t explain a lot about what went wrong.

The Act requires that a review of monetary policy be undertaken (by “the Bank”) every five years or so, and perhaps the current exercise they have underway is the first of these reviews.

But again note how marginal the MPC is (must be consulted – apparently late in the process (“on a draft”) – but no obligation to have regard to their comments). And meanwhile responsibility for the review rests not with the MPC, but with that generic ill-qualified Board. There might be a certain logic in an independent review (done by proper external reviewers) but it is just a weird model – explicable only by a desire to preserve the Governor’s absolute dominance – to marginalise the MPC (who actually had responsibility, and so some self-scrutiny and reflection could be of value), while leaving the power with the Board but ensuring that no one appointed to the Board has the expertise to add much value at all.

This is the Board, you may recall, that Grant Robertson tried to tell us last week had no responsibility for monetary policy.

The legislation is a mess, and I hope that if there is a change of government next year that the new government makes some legislative time available to tidy up some of these provisions, and completing a transition to a model in which a proper MPC has the core responsibility, collectively and individually.

As for the substance of the consultation, I have made a short submission, the text of which is here

Comments on first-round MPC Remit review

Some of my points are already dealt with above, and several are fairly minor in nature. I am broadly happy with the basic shape of the Remit, and it would ot be the end of the world were it simply to be rolled over as is.

I continue to favour a reduction in the inflation target, returning to the 0-2 per cent formulation we had in the 1990s, which is much closer to “a stable general level of prices” (the statutory formulation – and note that the Act is not up for grabs in this review). To make that feasible the effective lower bound on the nominal OCR (perhaps around -0.75 basis points) has to be addressed and either removed or substantially eased (doing so is not a difficult technical matter, but no central bank has yet done so). But even if the target is kept at a range of 1-3 per cent with a focus on the midpoint of 2 per cent it is important that the lower bound issues are addressed. We are in some respects fortunate that the 2020 downturn proved not to be primarily an adverse demand shock, but demand-led recessions will be back, and central banks are not adequately prepared for them. Meanwhile, the consultative document treats the lower bound issues as a given, even though as a technical matter they are entirely under the control of “the Bank” (how well equipped do you suppose that Board is to deal with these conceptual, legal, and monetary economics issues?)

Here are the last few paragraphs of my short submission

The new Reserve Bank Board

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

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

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

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

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

Thus, we have this from the Minister of Finance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

End of an era

Today marks the end of an era at the Reserve Bank, as the last of the “Governor as single decisionmaker” model is dismantled, and tomorrow the new Board takes over the primary responsibility for the Bank’s affairs. The single decisionmaker model was an experiment, but with time it was increasingly apparent that it was a poor one, increasingly unfit for purpose. No other country reforming its central banking and bank etc regulatory arrangements followed us. It is to the government’s credit that they have moved the governance model for the Reserve Bank back towards the international mainstream (even if the specifics of the 2018 and 2021 are less than ideal, and in some respect a dog’s breakfast).

(NB note that most of the new Board, to take up office tomorrow, has not yet been appointed – or at least announced. With the new Board reportedly supposed to be meeting tomorrow, perhaps there is some launch announcement planned, but it is all a bit strange and not really that satisfactory.)

In this post I wanted to focus, perhaps for the last time (although they still apparently have an Annual Report to come), on the old Board. This should be the last day we see this graphic topping the Bank’s “Our Board of Directors” page

For 32+ years, taxpayers have paid a Board to (come for lunch and the cocktail do and) monitor and hold to account the Governor (and more latterly the MPC). They controlled who could be appointed as Governor and to the MPC, and – consistent with those accountability responsibilities – could recommend dismissal. The rules and responsibilities have changed a bit over time. For the first decade or more, the Governor chaired the Board, and even though there was a non-executive directors committee that was supposed to do the holding to account, the messaging implied by the structure wasn’t exactly crystal clear. And it wasn’t until about 20 years ago that the Board was required to make its own (public) Annual Report, but even then not very much changed – and consistent with that general observation, the Board’s report was buried in the midst of the (Governor-controlled) Bank Annual Report and was given no publicity when the Bank released its Annual Report.

There have been some able people on the Board at various times over the years. And some awkward people (the two may even have overlapped), but the institutional incentives very quickly developed into a model that meant few hard questions really got asked, little serious scrutiny happened, and the public never got any serious insight from the Board’s activities on their behalf (the Board, after all, had access to papers the Bank jealously guards for years and years after they were relevant, and can engage and challenge the Governor and other decisionmakers). I say “very quickly developed” because in the earliest years of the regime there was a view – shared by the Governor – that the inflation targeting governance regime was relatively mechanical and that a Governor might reasonably expect to lose his/her job if inflation overshot the target range. The first (apparent) breaches in about 1995 prompted some hard questions, some letters to the Minister, but eventually a recognition that the whole thing involved a lot more judgement and discretion if sensible policy was to ensue. There was a recognition that the target was something to be “constantly aiming at”.

Unfortunately for the Board, had they ever aspired to do the job really well they didn’t have the resources to do so. It became customary to have one professional economist on the Board (first Viv Hall, then Arthur Grimes, more recently Neil Quigley), but Board members didn’t get paid much themselves, had no direct access to staff resources, had no budget to commission independent professional advice, and their own Secretary was for the most of time a senior staffer of the Governor. Board meetings occurred on Bank premises, and one entered the Board room past the row of oil paintings of former Governors. And once the Board got its own chair – chosen by them, not the Minister – for 13 years they opted to have as their chair former RB staffers, first Arthur Grimes, and second Rod Carr. Most of the Board members knew about being on corporate boards – where they had decision-making powers – and so there seemed to be a tendency to default towards the sorts of issues they might have dealt with as corporate board members. Monetary policy and financial stability/regulation were not high among them. Arms-length challenge and scrutiny also weren’t really among those functions – on a corporate board, the board has far more ownership of the firm’s strategy (something the Act never envisaged for the RB – the Board had no say, for example, in Policy Targets Agreements or the conduct of monetary policy).

And so acting as cover for management seems to have become the default mode – most especially externally but, as far as we can tell, often internally as well. Some Board members had their own agendas – some more laudable than others – but there was never much sign of a sustained effort to hold the Governor and Bank to account, to act as if they represented the government and people of New Zealand rather than the Bank management (notably whoever was the Governor at the time). At times, their Annual Reports even talked about helping with the Bank’s external relations (for example, at the functions held around Board meetings outside Wellington).

I could develop some anecdotes at length, including for example, the board member who used to ring me up (while I was still on staff) for inside angles on monetary policy and the Governor, at a time when that member was attempting to mark out an independent position (oops, he is now the Board chair). But I’ll largely leave it at that. I don’t think anyone – perhaps with the exception of some individual Board members – thinks the Board ever really did the job it was designed for. You could be attacked in public by the Governor – for exposing an OCR leak, resulting from weak management systems – and an approach to the Board still resulted only in them gathering in behind the Governor. Are we to suppose it was any different when Orr was attacking his critics around the bank capital plans in ways that few regarded as represented expected conduct from a Governor?

But what interested me was how they had handled the events of the last year or so. The Bank has run up massive losses on the LSAP. Inflation – headline and core – has shot through the top of the target range. All in all it is has been one of most interesting – and surely questionworthy – periods in the 30 years the Board had the monitoring and accountability responsibility. You might think the outgoing Board would want to end well.

A while ago I lodged an OIA requesting the Board minutes for the period November 2021 to April 2022. About the time those results came back I found on the Bank’s website the results of someone else’s OIA for the minutes for September to November 2021. So we have a run of several months of minutes, over a period when things moved a lot on monetary policy (actual inflation, the OCR, forecast inflation – oh, and those LSAP losses). We might have hoped for a lot of evidence of hard questioning, challenge, and serious scrutiny.

Well, might have if we had known nothing of the previous 30 years.

The Bank – or Board – is relatively open in what they release, so we get a good sense of the complete minutes. There are some questions about what they write down, but even there they seem to have improved (relative to earlier concerns that in some areas they were in flagrant breach of the Public Records Act).

What do we learn?

The first meeting was in early September, not long after the August MPS (which itself came the day after the lockdown was announced). The minutes are seven pages long, and we learn a fair bit about the People and Culture report, the Enterprise Risk Management report, the Governor’s activities, and even the RB superannuation scheme (which the Board had some particular non-statutory responsibilities for). Monetary policy gets half a page

Only one Board member is reported as saying anything (“noted” not exactly being a strong form of questioning) and none seems to have challenged the (soon to be restructured out) Chief Economist’s view that the Bank had plenty of time and didn’t need to act (much/) until it had a seen a full 12 months of data. The Governor – the most influential MPC member – is not reported as having said anything.

The late-October meeting minutes took eight pages. We learned quite a lot of various administrative and/or extraneous matters, including the Bank’s climate change strategy. There was quite a discussion on the forthcoming FInancial Stability Report, but no sign of any serious challenge or scrutiny from Board members, on requests for follow-up papers etc. And then we got to monetary policy, the OCR having just been raised for the first time.

I’m sure it was all very pleasant, but there is no sign of any hard questioning about immediately relevant issues (or perhaps the Public Records Act is being ignored again). No one seems to have challenged them as to whether, just possibly, if inflation was already above the midpoint and employment at or above midpoint, and forecasters had been taken considerably by surprise, whether a more aggressive stance might be warranted. No one seems to have challenged Ha on his complacent comment the previous month, despite (presumably) just having confirmed those minutes.

At the November meeting there appears to have been no discussion of monetary policy at all (although the Board was at pains to stress the importance of the outgoing Board having time to prepare their final Annual Report). Not a word. And, of course, still no mention at all of those mounting LSAP losses – and the Board is supposed to have been agents of the minister and the public, not of the Governor.

For the December meeting this is what the minutes record

All of which may have made for quite an interesting discussion, but as the Governor is recorded pointing out, monetary policy has to act given what is happening to fiscal policy (fiscal policy is not something the Governor or Board are responsible for). But there is no sign of any unease, of even a single Board member challenging the Bank to show that it was on the right track or that inflation would come out something like forecast. There is just no sense of holding powerful decisionmakers to account in particularly troubling times. Just a chat, with one’s friends and colleagues.

At the February meeting, this is all there was about monetary policy

Again interesting (if brief) but with not the slightest sense of unease or challenge, no pressure on the Governor or his colleagues.

In March

Were some future historian to stumble across these minutes, but not the relevant parts of the Act, they might have assumed that the Board had just a right to be briefed, but no responsibility for ensuring the Governor and the MPC are held to account.

And finally in this sequence, the April meeting

It is, I’m sure, interesting enough, but it scarcely counts as evidence of accountability.

Now, it is always possible that there are secret unrecorded discussions (in breach of the Public Records Act). The other OIA requester asked for a copy of one of the Board’s reports to the Minister, which the Board/Bank adamantly refused to release

That should be unacceptable: the Governor and MPC are statutorily accountable via the Board, and the idea that management might refuse to supply information to the Board because the Board’s report – even with some redactions – to the Minister might be released (with some lag) should have been unacceptable. But we needn’t worry that there might be anything very revealing in such a report: take a look at the March Board extract above, and you’ll see they record there that they were going to tell the Minister all was fine.

At one level, knowing what we do as to how the Board has operated over 30 years, none of this should be too surprising. But it doesn’t reflect well on them (any of them). We have a chair presumably focused mostly on working with the Governor to see in the new act (questionable appointments and all), and so hardly likely to make himself awkward on current monetary policy, and other Board members with neither the expertise, inclination, nor institutional culture to ask hard questions. But still….across all those months

  • no record of a single hard question,
  • no sign of any sustained engagement at all with the external MPC members (whom they are supposed to individually hold to account)
  • no requests for supplementary papers,
  • no suggestions of commissioning independent analysis,
  • not a single mention  of the huge (and mounting over this period) LSAP losses,
  • no suggestion of any regrets about anything.

It is easy to be inured to flawed frameworks and the weaknesses they generate, but this really isn’t good enough.  These people took the taxpayers’ money (no much admittedly, but they each took the deal) and seem barely to have been focused at all on their monetary policy accountability duties, through one of the biggest monetary policy disruptions for decades.   Perhaps I should ask for the minutes of meetings of the previous 20 months, but it would be a real surprise if anything had been different then.

The Bank itself appears little better, since there is no evidence in any of these minutes of robust or independent analyses and reviews of what had gone well, and what badly, why for examples forecasts had been so wrong, and what lessons staff and management had taken.  And so we are in the weird position  that the Bank has a consultation paper out at present on the future Monetary Policy Remit, and yet tells us that the review they are finally doing of the last couple of years stewardship may not even be released before the second round of consultation closes.

The Board has proved useless. It was always likely given the incentives and flawed structures, but that is no excuse for any of the members.  The job was there to be done, and they have not been doing it (most notably over the dramatic times of the last 12 months).

The end of the era will be no loss.  We can only wait and watch and see how the new Board does –  when the Minister finally manages to dredge up enough people willing to do the job to get a full complement on board.  

Questionable provisions in the new RB Act

On Friday (1 July) the new Reserve Bank legislation comes fully into effect. The new Reserve Bank Board takes over from the Governor personally as the key governing body of the Bank, on all matters other than the conduct of monetary policy (but even there they have a big influence on the composition of the MPC). A member of the outgoing (advisory) Board told us – he sits on the RB pension fund trustees as, for my sins, do I – that the new Board is having its first meeting on Friday. And yet today is Tuesday and we still don’t know who is being appointed to this (on paper) powerful government board. Every Tuesday for the last couple of months I’ve checked Grant Robertson’s Beehive page, and still there is no announcement.

The Governor is a Board member ex officio. And several months the Bank slid onto their website the information that two members of the existing Board (including the chair) and one new person had been appointed to a “transition board” and would be appointed formally to the new Board. But the same web page still says

Neither the government nor the Bank seem to have been entirely straight on the matter, since an OIA release of Board minutes says that Suzanne Snively has also been appointed to the transition board, and has been attending meetings of the outgoing board. It is a curious appointment, both for her age (I’m not keen on a trend towards US-style gerontocracies) and for the fact that it is almost 40 years since Roger Douglas first appointed her to the Reserve Bank Board (back in the previous era when the Board held the formal powers). Media reports suggest she fell out with Douglas, and is much more ideologically aligned with the current version of the Labour Party and its not-Douglas Minister of Finance.

The other newbie we know about is Rodger Finlay. I wrote about his appointment a few weeks ago and there has since been some media coverage. Recall that the Bank was quite open in advertising that Finlay had been appointed to the transition board and was being appointed to the full Board even though he is chair of NZ Post, majority-owner of a New Zealand bank (Kiwibank) that just happens to be the weakest of the large banks in the system. The unadorned label “He is currently Chair of New Zealand Post” is still there this morning.

It was a highly inappropriate appointment, even though in response to questioning from a journalist the Minister of Finance’s office eventually advised that Finlay was ending his term with NZ Post on 30 June. [UPDATE: I’m advised this was actually passed on to the journalist quite readily by NZ Post itself.] If his appointment to the Reserve Bank early was really vital to the success of the new regime, he should have stepped down from the NZ Post role immediately, and neither Orr, Quigley nor Robertson should ever have countenanced anything different. Quigley told media that Finlay had been developing “new governance systems” for the Board, but if he had any real suitability for such a role – where ethics count hugely – he should have known from the start how inappropriate it was, and would look, for him to be serving the Reserve Bank in such a role while chairing the company that majority-owned a bank regulated by the Reserve Bank. For all that Quigley says they were aware of the issue all along, everything about how they operated suggests they took the narrowest legal interpretation, in a way they would no doubt look on askance if a regulated entity tried it on. (It doesn’t strengthen their case that NZ Post is also majority owner of Kiwi Wealth, a significant funds management operation even though that body is not regulated by the Reserve Bank.) As it is, documents released under the Official Information Act confirm that Finlay has been regularly attending meetings of the existing Reserve Bank Board and thus been party to all the information that board has had before it.

It is a poor look and reflects poorly on everyone involved – Minister, Governor, chair, Finlay, and (less severely) the other members of the outgoing board. Among other things, it raises doubts about the approach that these players might take in future. And also leaves us with the question as to how the consultation with other political parties – now required for Board appointees – went down as regards the Finlay appointment. I guess one day the OIA may shed some further light. It is all rather suggestive of a cavalier Wellington approach to conflicts of interest (and both actual and apparent matter).

In my earlier post I included this section of the new legislation on the sort of people who can’t be Board members.

I have no problem with the provisions that are there. The problem is with what is not there. As I noted in the earlier post it is astonishing that a director or senior employee of a company that has a majority holding in a regulated entity (bank, insurer, deposit-taker etc) can be appointed to the Board, and can hold those two positions simultaneously. It is almost as concerning that someone who derived most of their income from work for one or more regulated entities (eg a partner of a law or accounting firm) can simultaneously be a director of the prudential regulatory agency.

But what I hadn’t noticed then (I guess my focus was elsewhere) was that there is no restriction at all on Reserve Bank board members holding ownership interests in regulated entities. According to this brand new law, I can’t be a director of a bank, insurer or finance company and simultaneously serve on the Reserve Bank Board (tick) but…..I could own a whole entity and do so. It is astonishing that Parliament has not protected us against the risk of such an appointment – so much so that one almost has to start asking why. Reserve Bank staff aren’t (or weren’t) allowed any such holdings, but it is the Board that makes the rules, sets priorities etc..

Before going further I should clarify two things: first, I’m sure no one wants to stop Board members (or staff) having totally passive interests through, say, a widely-offered Kiwisaver fund, or a passive NZ equities index fund. A caveat that no holding could be large enough it could credibly be regarded by a reasonable observer as likely to influence decisionmaking would seem sufficient to cover that. But that does not cover a 40 per cent stake in a finance company (say). And, second, the issue here is not a director might be engaging in deliberations specifically on a company s/he held a major stake in: I’m still willing to believe conflict of interest policies would require such a director to recuse him/herself from that specific discussion. But the Reserve Bank Board makes policy, applies policy, for broad classes of institutions, and no director with an ownership (or major income) interest in a regulated institution should be making policy for that class of institution, or contributing to internal discussion on the direction policy should go.

The new Act has a long list of provisions regarding conflicts of interest (from section 61). It starts reasonably enough

Any such conflict has to be disclosed to the chairperson – but not to the Board more generally, let alone the public.

And although the general provision is that a person cannot participate in a matter in which they have a conflict, there is explicit provision in the Act for the chair to waive that prohibition

Any such waiver has to be disclosed, but only in the Bank’s Annual Report, which may not be out for more than a year after such a waiver has been granted.

And one might have more confidence in the current chair, were he not complicit in the appointment of Rodger Finlay, while the latter was chair of the owner of a majority stake in a large bank.

More generally, there is a sense that these conflict of interest rules are written to cope with episodic events and conflicts that might arise, not really specifically foreseeably, in the course of a term on the Board. If the Board is looking to hire a consultant who is the husband or child of a Board member most probably that Board member would stand aside for that discussion/decision. But a Board member who owned half a finance company might reasonably claim that, having known of such an interest, the Minister had nonetheless lawfully appointed him/her, and that the conflict of interest rules would not apply to the Board’s general deliberations on policy for finance companies. Perhaps it would hold up, or perhaps not, but the government and Parliament should never have left such scope for uncertainty, the risk of highly inappropriate appointees (however capable), in the legislation. Section 31 (see above) should have been written a lot more restrictively.

My concerns were only heightened when I happened to have a look at the clause in the Act governing the removal/dismissal of a Governor. These are the things that disqualify you from being Governor.

But notice that being a director of an entity that owns a regulated entity isn’t a disqualification. And neither is having a direct ownership interest in a regulated entity.

Was this an oversight? It appears not. These are just causes for which the Governor can be dismissed

1(g) looks like it should be reassuring. But, there is more

Parliament has explicitly written the Act to allow the Minister of Finance to agree with the Governor that the Governor can hold an “ownership interest in a regulated entity” while serving as Governor (all compounded by the fact that no such provision would be public information).

I am not, repeat not, suggesting anything shady between the current incumbents, but why would Parliament put such a provision in the Act (without at least one of those “trivial or incidental holdings arising from passive holdings in broad-based investment funds” type of caveats)? It is just a dreadful look.

Will any of these provisions necessarily be abused? No, not necessarily. But things have not gotten off to a good start with the Finlay appointment, which makes it difficult to have much confidence in the rigorous integrity of the people involved in these appointments etc, now and in the future. Maintaining a honest and uncorrupt system depends in no small part on sweating the small stuff, but Parliament should just never have left these matters in any doubt, apparently entirely reliant on successive ministers, Governors, Board members being interested in bending over backwards, even when it is inconvenient, to avoid the substance or appearance of conflict in our prudential regulator.

Meantime minister, where are the Board members for this shiny new goverance model? And where, in particular, are the members with real and in-depth expertise in banking, financial system regulation and so on?

A highly inappropriate appointment

For 32 years the Board of the Reserve Bank hasn’t mattered very much. With no democratic mandate, no effective accountability, and no subject expertise either, they have a big say in who has become Governor (the Minister of Finance can only appoint someone they agree to recommend). But apart from that once in five years activity, they’ve mostly been asleep, turning up and collecting their (rather modest) fees but mostly doing little of what they are supposed to be doing – holding successive Governors to account. On paper, the model looked sensible enough, but once it became clear that accountability was a bit harder than it first looked, successive boards seemed to lose interest. With no resources and little expertise, and not much incentive either, they settled for a role that in practice – and it is documented in successive Annual Reports – amounted to little more than providing cover for successive Governors; when they did well, when they did poorly, and even when they went quite off reservation. It probably wasn’t greatly helped by the fact that when the Board finally got to have its own chair, the first two were former senior managers of the Reserve Bank. There were a few things they had legal responsibility for, but in the scheme of things it didn’t amount to much. And when they had little power, and even less inclination to use it, it didn’t very much matter who was appointed. Have we, for example, seen or heard any sign of hard critical accountability questions of the Bank re the recent monetary policy failure, or the $8bn of losses the Bank has run up? (That is a real question: I have an OIA in requesting the minutes of recent meetings.)

But on 1 July, a new era dawns. When the 1989 Act was passed, it gave almost all the powers of the Bank to the Governor personally. The 2018 amendment changed that, at least on paper, as regards monetary policy, but those responsibilities went to the MPC. The Board’s role didn’t change much, other than acting as postmen for the Governor to let the Minister know who he wanted appointed to the MPC. In what are now much the bigger areas of the Bank’s responsibility (banking regulation, insurance regulation, cash etc), the powers still rested with the Governor.

But not from 1 July. The Governor will still be a Board member, but it will be the Board that once again has the power and the responsibility for the discharge of the Bank’s powers and responsibilities (ex monetary policy). They can, and no doubt will, delegate many day to day things to the Governor, but they will have the power.

I’m not optimistic it will make much difference. Cultures change slowly, management is always much more motivated and better resourced than part-time government boards, and it is a poor signal that the previous chair is being carried over to the new regime. One might have hoped that the skills required for one role might be different from those for the new one. But apparently the Minister of Finance doesn’t see it that way.

Three weeks out from the start date the government has still not announced most of the members of the new board. But some months ago they announced the first three appointees, to serve as a “transitional board” smoothing the way to the new regime, before those three people take up formal board appointments on 1 July.

Here it is worth noting that the government has chosen to swing from one very unusual model to another one. It was very unusual (whether in New Zealand public life or overseas central banks and prudential regulatory agencies) to have so much power vested in a single individual. It is quite normal to have a Monetary Policy Committee (even if quite extraordinary to bar anyone with active expertise in the area from non-executive positions on the MPC). But it is very unusual to have banking, non-banking, insurance and payments system regulatory functions – policymaking and implementation – resting with a part-time non-executive board (especially when these same part-timers also have responsibility for MPC and Governor appointments). In such a model, avoiding potential conflicts of interest (actual and apparent) should always have been a critical consideration.

In the Act there is as a long list of types of people who are disqualified from being on the board.

I don’t have any quibble with the items that are on that list. My problem is with the ones that aren’t. One should probably add to (l) “or the chief executive or employee of any Crown agency”. But my biggest concern – and, as we shall see, the problem is already apparent – is with 31(2)(a). Again, just fine as far as it goes, but it does not go very far. Thus, a director or employee of an entity that owns a regulated entity is not disqualified (which just seems extraordinary), and nor is there anything to disqualify anyone who might earn a large chunk of their income (say as lawyer or consultant) from a regulated entity). No doubt the Board will have a conflicts of interest policy which would stop someone being directly involved in discussions on the institution they were part of, but such appointments simply should not be made at all. Policy affects sectors more generally, and these conflicts are not incidental. (Even with the old Board, which had no powers, there was an issue not that long ago with a Board member who was also a director of an insurance company, a sector for which the Bank is prudential regulator.)

Here is my specific concern.

I don’t know Mr Finlay, had never heard of him prior to this appointment, and know nothing about him beyond what is on the Bank’s own website.

But he has just been appointed to the board of New Zealand banking system regulator by the Minister of Finance when he is also chair of NZ Post, which is the majority owner of the 5th biggest bank in New Zealand (which also happens to be government-owned, and his appointment to the NZ Post Board is also a government appointment).

I checked the NZ Post website and there was no sign Finlay was just about to step down from that role (and even if he was, he should not be appointed to the RB role until quite clear of his banking-sector responsibilities).

It isn’t even as if Finlay seems to have any particular expertise in banking or financial system regulation – he just seems like another accountant and professional director, of a generic type that must be two a penny. If he did have great expertise it still wouldn’t justify such a conflicted appointment, but there is not even that to be said for him.

How can the Minister of Finance have thought such an appointment was okay?

But there are questions about others too.

The appointment of Board members is in the gift of the Minister, but it would be very unusual if the Governor (and the old/new chair) had not been consulted. Did they think it was just fine to have on the board of the banking regulator someone who is chair of a company that owns a large bank (all the more troubling when that bank is the weakest in the system, by capital, and most prone to bailout risk)? What advice did they provide to the Minister or Treasury on that point?

And one of the odd features of the new law is this provision

The fact that this provision was added, emphasises just how important these RB Board roles are seen as being (not just cosmetics like the old board). But where were the other political parties (National and ACT in particular) when Grant Robertson consulted them about Finlay’s appointment?

It is an outrageous appointment. It is hard to think of a comparable appointment in other advanced countries (but if anyone knows of one, let me know). It would not even be possible in most (generally run by executive boards). But even if some other advanced-country government somewhere has made such an appointment, it should not have been done here. It is bad form and – whatever the possible merits of Mr Finlay personally – it sets a dreadful precedent. If this government can do it for the chair of the owner of a state-owned bank, what is there to hold back some future government appointing someone in a similar position in a private bank. Mr Finlay himself, may be (probably is) a perfectly decent person, but if he really had what it took to be on the founding board of a banking regulator, he should have known not to have taken the RB appointment while holding the NZ Post one. Adrian Orr and Neil Quigley share responsibility, having (at best) stood silently by.

The real responsibility rests with Grant Robertson and the Cabinet. But they have apparently been given cover for this appointment by their political opponents, who apparently did not say no when Robertson came to consult, and even if (just possibly) they demurred then have said nothing since.

It is a sad example of the increasing corruption (institutional, rather than personal financial) of the New Zealand political system, notwithstanding those deluded annual Transparency International perceptions surveys.

This appointment should simply never have been made. It should be revoked, or Mr Finlay should do the decent thing and resign one or other of his NZ Post and Reserve Bank appointments.

UPDATE: According to this entry on The Treasury’s website, Finlay’s NZ Post appointment was for a term running from 21 August 2019 to 30 April 2022. As noted in the main post, he is still shown as chair on the NZ Post website, although I could not find an announcement of a renewal of his appointment by the relevant minister(s).

UPDATE: In addition to it being inappropriate to have someone on the board of the banking regulator who is chair of the majority owner of Kiwibank, it would also seem inappropriate to have someone on the central bank board – directly involved in the appointment of the Governor and MPC members – who is chair of the majority owner of the funds management business, Kiwi Wealth.