A principal who runs a school well does not get to tell parents what to cook for dinner. The authority is real – but it is specific. It does not travel home with the children.
The Reserve Bank of New Zealand seems to have the same problem – mistaking authority in one domain for authority in everything adjacent.
In January, Governor Anna Breman co-signed an international statement of “full solidarity” with US Federal Reserve chair Jerome Powell, inserting New Zealand’s central bank into an American political dispute.
Many shared concerns about the Trump administration’s conduct. But foreign policy belongs to Ministers accountable to Parliament, not to an independent central banker acting on her own initiative at 2 am New Zealand time in Basel. Winston Peters told her to stay in her lane. He was right – even though Breman’s instincts were understandable.
Last week, the Reserve Bank did it again – in a different domain, with a bigger price tag, and with an even more clear-cut jurisdictional problem.
The Bank released a consultation paper proposing to require banks to establish over 1,200 new “full-service” cash sites across the country. New Zealanders in urban areas would be no more than a three-kilometre walk from free cash services. Rural residents would face no more than a 15 to 30 kilometre drive. Banks would bear the cost – an estimated $104 million a year, at least in the first instance. Banking customers will bear more of it in the longer term. Kiwibank chief executive Steve Jurkovich said the banking industry was “blindsided” by the scope of the proposals.
Rural New Zealand may well need better access to cash. Banks have closed 40 per cent of their branches in the past decade. The concern is legitimate. But the question is not whether something should be done – it is whether the Bank actually has the power to do this and who should cover the cost.
On the face of the consultation, the answer to the first question appears to be no. The 84-page document does not identify any express statutory power authorising the Bank to mandate where banks provide retail cash services. It relies instead on three propositions: that “one of our functions is ensuring the cash needs of the public are met”; that providing cash services is part of a bank’s “social licence to operate”; and the Bank’s self-described role as “steward of cash.”
None of these is a legal power. The Bank’s central banking function under section 116 of the Reserve Bank Act involves issuing currency, monitoring its distribution, and monitoring the impact of technology on the public’s needs. Those are observational functions – not a power to compel private businesses to establish a national cash distribution network. “Social licence” is a rhetorical concept, not a regulatory authority. And “stewardship of cash” is a title the Bank gave itself.
What the Bank appears to be doing is borrowing the coercive authority it holds as prudential regulator to keep the banking system sound – where it can impose binding requirements on banks under prudential legislation – and deploying it in a domain where no such power exists.
Prudential regulation guards against systemic risks – the kind that can bring down the banking system. It does not cover the colour of the bank’s carpets, the hours they keep, where they operate shopfronts or where they place ATMs.
Mandating minimum geographic cash coverage across the country is a service requirement, not a financial stability issue. And no financial stability regulator in any comparable country has used prudential powers for this purpose. Every jurisdiction that has acted – including the United Kingdom, which the Reserve Bank itself cites as a model – has required specific legislation.
The Reserve Bank itself recognised this just six years ago. In its October 2019 “Future of Cash” consultation, the Bank proposed that new regulation-making powers be added to the Reserve Bank Act. The Bank said these powers were “only intended to be invoked if there is risk of a significant reduction in access to cash across the country.” The envisaged model was that the Reserve Bank would design regulations and recommend them to the Minister of Finance, with parliamentary oversight.
Parliament then had two opportunities to grant those powers – the Reserve Bank Act 2021 and the Deposit Takers Act 2023. It enacted the Bank’s other 2019 proposal (standards for banknote-processing machines), but not the cash access mandate. The current consultation skips over all of this. The Bank is asserting a power that Parliament was asked to legislate and chose not to grant.
If the Bank believes it has the statutory power to compel banks to establish a national cash distribution network regardless, it should say so. A proposal to impose $104 million in annual costs on the banking sector demands no less. On the face of the consultation, the Bank does not appear to have given the question a moment's thought.
The contrast with the United Kingdom is telling. In Britain, it was Parliament that decided this policy, legislating cash access requirements through the Financial Services and Markets Act 2023. Parliament gave the Financial Conduct Authority – not the Bank of England – explicit new powers to oversee compliance. The power originated with elected representatives, not with the central bank.
But the jurisdictional question is not the only problem. Even if the Reserve Bank had the power to tell commercial banks where and when to operate, and even if greater access to cash services in remote communities had benefits exceeding the overall cost, achieving the outcome through regulation would be a mistake.
In the shorter term, costs of a regulatory mandate may be borne by bank shareholders. But those costs would quickly pass through into the overall cost of bank services, and largely onto urban banking customers, whether richer or poorer. Richer banking customers may more quickly shift over to lower-cost FinTech solutions.
If Parliament decides that rural cash services need to be subsidised, it would be most equitable to place that burden on taxpayers broadly.
So even if the Reserve Bank could set this mandate on banks, it would be a bad idea. But thinking that it has such a mandate, when it clearly does not, is the bigger problem – and it is a problem of governance.
The Bank has a history of testing the boundaries of its statutory authority. Former Reserve Bank official Michael Reddell spent years documenting former Governor Adrian Orr’s pursuit of initiatives that Reddell argued had “no grounding in statute.” As Reddell observed, “Parliament identifies the Bank’s role and powers, not the Governor.” The board did not stop Orr. Nobody stopped the Governor co-signing the Powell statement. And nobody, it seems, asked whether this consultation had a legal foundation.
As investment banker and company director Andrew Body has observed, the Reserve Bank’s failures “can and should be laid squarely at the board’s feet.” Treasury, the Bank’s statutory monitor, has been equally passive. The guardrails were identified as missing years ago. They are missing still.
Both episodes this year – the Governor’s foray into foreign policy and the proposal to dictate where banks provide cash – reflect the same constitutional problem. In each case, an independent institution has asserted authority it has not stopped to consider whether it holds.
If the Government is concerned about universal cash access, it should legislate, as the UK did. And the cost should fall on the tax base more broadly. In the meantime, Finance Minister Nicola Willis should be asking why the board let this paper out the door without a legal basis.
Regulatory independence exists so that technical decisions can be made free from political pressure. It does not exist so that regulators can make political decisions free from democratic accountability.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative.
Roger Partridge is chairman and a co-founder of The New Zealand Initiative and is a senior member of its research team. He led law firm Bell Gully as executive chairman from 2007 to 2014.
This article was sourced HERE
Many shared concerns about the Trump administration’s conduct. But foreign policy belongs to Ministers accountable to Parliament, not to an independent central banker acting on her own initiative at 2 am New Zealand time in Basel. Winston Peters told her to stay in her lane. He was right – even though Breman’s instincts were understandable.
Last week, the Reserve Bank did it again – in a different domain, with a bigger price tag, and with an even more clear-cut jurisdictional problem.
The Bank released a consultation paper proposing to require banks to establish over 1,200 new “full-service” cash sites across the country. New Zealanders in urban areas would be no more than a three-kilometre walk from free cash services. Rural residents would face no more than a 15 to 30 kilometre drive. Banks would bear the cost – an estimated $104 million a year, at least in the first instance. Banking customers will bear more of it in the longer term. Kiwibank chief executive Steve Jurkovich said the banking industry was “blindsided” by the scope of the proposals.
Rural New Zealand may well need better access to cash. Banks have closed 40 per cent of their branches in the past decade. The concern is legitimate. But the question is not whether something should be done – it is whether the Bank actually has the power to do this and who should cover the cost.
On the face of the consultation, the answer to the first question appears to be no. The 84-page document does not identify any express statutory power authorising the Bank to mandate where banks provide retail cash services. It relies instead on three propositions: that “one of our functions is ensuring the cash needs of the public are met”; that providing cash services is part of a bank’s “social licence to operate”; and the Bank’s self-described role as “steward of cash.”
None of these is a legal power. The Bank’s central banking function under section 116 of the Reserve Bank Act involves issuing currency, monitoring its distribution, and monitoring the impact of technology on the public’s needs. Those are observational functions – not a power to compel private businesses to establish a national cash distribution network. “Social licence” is a rhetorical concept, not a regulatory authority. And “stewardship of cash” is a title the Bank gave itself.
What the Bank appears to be doing is borrowing the coercive authority it holds as prudential regulator to keep the banking system sound – where it can impose binding requirements on banks under prudential legislation – and deploying it in a domain where no such power exists.
Prudential regulation guards against systemic risks – the kind that can bring down the banking system. It does not cover the colour of the bank’s carpets, the hours they keep, where they operate shopfronts or where they place ATMs.
Mandating minimum geographic cash coverage across the country is a service requirement, not a financial stability issue. And no financial stability regulator in any comparable country has used prudential powers for this purpose. Every jurisdiction that has acted – including the United Kingdom, which the Reserve Bank itself cites as a model – has required specific legislation.
The Reserve Bank itself recognised this just six years ago. In its October 2019 “Future of Cash” consultation, the Bank proposed that new regulation-making powers be added to the Reserve Bank Act. The Bank said these powers were “only intended to be invoked if there is risk of a significant reduction in access to cash across the country.” The envisaged model was that the Reserve Bank would design regulations and recommend them to the Minister of Finance, with parliamentary oversight.
Parliament then had two opportunities to grant those powers – the Reserve Bank Act 2021 and the Deposit Takers Act 2023. It enacted the Bank’s other 2019 proposal (standards for banknote-processing machines), but not the cash access mandate. The current consultation skips over all of this. The Bank is asserting a power that Parliament was asked to legislate and chose not to grant.
If the Bank believes it has the statutory power to compel banks to establish a national cash distribution network regardless, it should say so. A proposal to impose $104 million in annual costs on the banking sector demands no less. On the face of the consultation, the Bank does not appear to have given the question a moment's thought.
The contrast with the United Kingdom is telling. In Britain, it was Parliament that decided this policy, legislating cash access requirements through the Financial Services and Markets Act 2023. Parliament gave the Financial Conduct Authority – not the Bank of England – explicit new powers to oversee compliance. The power originated with elected representatives, not with the central bank.
But the jurisdictional question is not the only problem. Even if the Reserve Bank had the power to tell commercial banks where and when to operate, and even if greater access to cash services in remote communities had benefits exceeding the overall cost, achieving the outcome through regulation would be a mistake.
In the shorter term, costs of a regulatory mandate may be borne by bank shareholders. But those costs would quickly pass through into the overall cost of bank services, and largely onto urban banking customers, whether richer or poorer. Richer banking customers may more quickly shift over to lower-cost FinTech solutions.
If Parliament decides that rural cash services need to be subsidised, it would be most equitable to place that burden on taxpayers broadly.
So even if the Reserve Bank could set this mandate on banks, it would be a bad idea. But thinking that it has such a mandate, when it clearly does not, is the bigger problem – and it is a problem of governance.
The Bank has a history of testing the boundaries of its statutory authority. Former Reserve Bank official Michael Reddell spent years documenting former Governor Adrian Orr’s pursuit of initiatives that Reddell argued had “no grounding in statute.” As Reddell observed, “Parliament identifies the Bank’s role and powers, not the Governor.” The board did not stop Orr. Nobody stopped the Governor co-signing the Powell statement. And nobody, it seems, asked whether this consultation had a legal foundation.
As investment banker and company director Andrew Body has observed, the Reserve Bank’s failures “can and should be laid squarely at the board’s feet.” Treasury, the Bank’s statutory monitor, has been equally passive. The guardrails were identified as missing years ago. They are missing still.
Both episodes this year – the Governor’s foray into foreign policy and the proposal to dictate where banks provide cash – reflect the same constitutional problem. In each case, an independent institution has asserted authority it has not stopped to consider whether it holds.
If the Government is concerned about universal cash access, it should legislate, as the UK did. And the cost should fall on the tax base more broadly. In the meantime, Finance Minister Nicola Willis should be asking why the board let this paper out the door without a legal basis.
Regulatory independence exists so that technical decisions can be made free from political pressure. It does not exist so that regulators can make political decisions free from democratic accountability.
This article was sourced HERE
2 comments:
More lobbying on behalf of the Big Banks by the NZ (Oligarch's) Initiative, which bears much of the responsibility for our cost of living crisis. It counts as fee paying members Big Tobacco, Big Supermarkets, Big Electricity Gentailers, Big construction, Big Tech, and more. A former Initiative "fellow", a mate of Crampton who wrote this article, is PM Luxon's Chief Policy Adviser.
No wonder the PM is going down. Luxon declared economic warfare on middle NZ in terms of the prices we face, in favour of the oligarchs. He demands our full unconditional surrender, all of our cash, and our vote. This embarrassing only-reads-exec-summaries, shallow former Unilever sales manager has to go.
Yeah what the heck, what does a bank have to do with cash?! Outside their lane indeed.
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