ACT welcomes long overdue capital review

ACT is welcoming the Reserve Bank’s review of higher capital requirements for banks, a policy the Party has campaigned against since they were first mooted by Adrian Orr in 2018.

“ACT led the charge against this policy because we saw the higher costs it was going to bake into people’s lives”, says ACT Leader David Seymour.

“Despite a range of scathing reports, Adrian Orr pressed ahead with the policy.

“Banking experts Andrew Body and Simon Jensen showed the rules add between 0.25 and 0.375 percentage points to mortgage rates compared with Australia. For a million-dollar mortgage, that would mean between $2,500 and $3,750 in extra annual interest payments.

“Former Treasury Secretary Dr Graham Scott found the policy would reduce economic output by $2.7 billion a year – through higher interest rates and lower investment by firms – for a hypothetical benefit of $900 million.

“Former Reserve Bank economist Ian Harrison estimated the cost to New Zealand was likely to be around $1.5 billion per year, and possibly more.

“This policy is the missing piece of the cost-of-living crisis.

“The capital ratio is the amount of their own money shareholders in a bank invest versus money from depositors that is loaned on to other customers. Increasing the capital ratio means more capital invested by shareholders, meaning demand for bigger dividends, meaning higher interest rates for borrowers. The Reserve Bank claimed that having more capital would save the banks from running out of cash in hard times.

“But the policy is a solution looking for a problem because New Zealand banks are already well-capitalised by international standards. No other country requires banks to hold enough capital to survive a one-in-200-year financial crisis.

“ACT is squarely focused on reducing costs for New Zealanders by replacing the RMA, making it easier to access overseas building products, simplifying our anti-money laundering law, and making it easier for people to invest in New Zealand.”