Submissions closed last week on the Reserve Bank’s Keeping Cash Local consultation process. It was a strange proposal, with a stranger process.
Let’s start with the underlying problem before getting to the Bank’s strange consultation.
It began with concern in rural communities about bank branch closures. In some places, it can be a long drive to the nearest bank. In others, your preferred bank might no longer have a branch – which might lead to questions about whether switching banks might be best.
The concern is real though. And if a government decides that there is public benefit in a broader range of services being available in remote places than is commercially feasible, there is a fairly standard answer.
The government can directly subsidise provision of whatever good thing the government would like to see provided in the identified places. It can put up a request for proposals, inviting businesses to propose solutions to the problem – whether ATMs that can take deposits, cash service facilities, or a different solution entirely.
The cost then falls on the tax base through the normal Budget process, where it is visible and weighed against other priorities. The tax system also puts more of the burden on higher earners.
If the government believes that some broad public purpose is achieved through greater access to cash services in remote areas, funding those services directly is likely the best approach.
That is not what the Reserve Bank proposed.
The consultation proposed a standard that could require thousands of cash-service sites. At one modelled endpoint, collective provision implied almost 1,300 sites – and likely would have required Commerce Commission authorisation. Individual compliance by the four large banks implied over 5,000 sites.
The numbers ran that high because coverage was very broad. At least 95% of people in any town or city with more than a thousand people would have to be within three kilometres of a site. That kind of coverage is easier to propose when the cost does not have to compete with other worthy objectives in the government’s budget process.
Instead, the cost would initially fall on the banks. “Initially”, because that is only the legal incidence of it when regulation requires the banks to provide those services. The cost would ultimately fall on some mix of bank customers including borrowers, depositors, and fee-paying customers, bank shareholders, and, probably to a lesser extent, bank employees and suppliers. Treasury thought that the burden would largely fall on bank customers.
The proposal really did not make much sense, even if the RBNZ had legal authority to compel banks to provide the services. The cost-benefit assessment effectively compared the proposed standard with a wholly cashless New Zealand, rather than estimating the marginal benefit of the extra sites. It is unlikely that cash would disappear but for this proposal.
And it is part of a worrying trend. If a government wants to provide more services but wants to pretend it doesn’t cost taxpayers anything, it can compel private businesses to provide the service instead. Government faces a budget constraint when it spends funds raised from taxpayers. No comparable constraint applies to costs imposed through regulation. One result is regulation where spending would make more sense.
But the “how did this get out the door?” question is not mainly about the policy’s dubious merits.
Put simply, RBNZ had no present legal power to impose the standard on which it was consulting. The OIA record shows that officials knew further legal steps were required.
Recall that central bank independence does not mean that the Bank can do anything it wants. Its powers are prescribed by legislation. Prudential regulation over commercial banks does not give the Reserve Bank the power to regulate the colour of their carpets or their hours of service.
In July 2025, following a meeting with the Minister of Finance, RBNZ Assistant Governor Karen Silk recorded that current powers could allow the Reserve Bank to recover costs from banks if the Reserve Bank delivered or subsidised services itself. But the Reserve Bank’s “real desire” was that commercial banks be required to deliver those services, which “would require legislation”.
By November 2025, RBNZ was telling the Minister that existing legislation might support regulations, while also considering new legislation. Its letter to banks encouraged a voluntary arrangement while noting that regulatory options were being explored.
It also considered providing the service itself while levying commercial banks for the cost of service provision.
Shortly before launch, RBNZ told the Minister that its current options were limited. It considered that it could provide the service itself and levy banks for the cost, with an Order in Council. It also sketched a possible Deposit Takers Act standard, but only after regulations and not before 2028. New primary legislation, it said, was the most direct route.
So the RBNZ clearly understood that, whatever the tone in the consultation documents, the RBNZ could not simply require commercial banks to open hundreds or thousands of new cash service outlets. That regulatory threat was the backstop against which ‘voluntary’ negotiations were to be undertaken.
The word ‘voluntary’ in these sorts of discussions is more than a little fraught. The Reserve Bank is the regulator of the commercial banks. Being offside with one’s regulator is risky. The process looked less like voluntary agreement than pressure to comply under a threat of doubtful authority.
The Governor was sent a January draft. The final paper, sent to her on 20 February, was not opened.
But her November induction briefing said only that the Reserve Bank was seeking agreement from the commercial banks and trialling its own Community Cash Services. It did not mention the unsettled legal authority or the contemplated regulatory and cost-recovery backstops.
Although the project was Board-monitored, there is no indication that the incoming Governor was adequately briefed that RBNZ had no present unilateral power to impose the proposal. Any mandatory route required at least Ministerial and Cabinet action. The Bank and its Board failed the incoming Governor.
To sum up: RBNZ proposed a service obligation it had no present ability to require. The prospect of compulsion, or levies if the RBNZ provided the service, was the backstop to the “voluntary” deal it sought.
Even if it had possessed the power, targeted subsidy in the limited places where service was warranted would have been more direct.
The best outcome now is a proper review of how this got out the door.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
The concern is real though. And if a government decides that there is public benefit in a broader range of services being available in remote places than is commercially feasible, there is a fairly standard answer.
The government can directly subsidise provision of whatever good thing the government would like to see provided in the identified places. It can put up a request for proposals, inviting businesses to propose solutions to the problem – whether ATMs that can take deposits, cash service facilities, or a different solution entirely.
The cost then falls on the tax base through the normal Budget process, where it is visible and weighed against other priorities. The tax system also puts more of the burden on higher earners.
If the government believes that some broad public purpose is achieved through greater access to cash services in remote areas, funding those services directly is likely the best approach.
That is not what the Reserve Bank proposed.
The consultation proposed a standard that could require thousands of cash-service sites. At one modelled endpoint, collective provision implied almost 1,300 sites – and likely would have required Commerce Commission authorisation. Individual compliance by the four large banks implied over 5,000 sites.
The numbers ran that high because coverage was very broad. At least 95% of people in any town or city with more than a thousand people would have to be within three kilometres of a site. That kind of coverage is easier to propose when the cost does not have to compete with other worthy objectives in the government’s budget process.
Instead, the cost would initially fall on the banks. “Initially”, because that is only the legal incidence of it when regulation requires the banks to provide those services. The cost would ultimately fall on some mix of bank customers including borrowers, depositors, and fee-paying customers, bank shareholders, and, probably to a lesser extent, bank employees and suppliers. Treasury thought that the burden would largely fall on bank customers.
The proposal really did not make much sense, even if the RBNZ had legal authority to compel banks to provide the services. The cost-benefit assessment effectively compared the proposed standard with a wholly cashless New Zealand, rather than estimating the marginal benefit of the extra sites. It is unlikely that cash would disappear but for this proposal.
And it is part of a worrying trend. If a government wants to provide more services but wants to pretend it doesn’t cost taxpayers anything, it can compel private businesses to provide the service instead. Government faces a budget constraint when it spends funds raised from taxpayers. No comparable constraint applies to costs imposed through regulation. One result is regulation where spending would make more sense.
But the “how did this get out the door?” question is not mainly about the policy’s dubious merits.
Put simply, RBNZ had no present legal power to impose the standard on which it was consulting. The OIA record shows that officials knew further legal steps were required.
Recall that central bank independence does not mean that the Bank can do anything it wants. Its powers are prescribed by legislation. Prudential regulation over commercial banks does not give the Reserve Bank the power to regulate the colour of their carpets or their hours of service.
In July 2025, following a meeting with the Minister of Finance, RBNZ Assistant Governor Karen Silk recorded that current powers could allow the Reserve Bank to recover costs from banks if the Reserve Bank delivered or subsidised services itself. But the Reserve Bank’s “real desire” was that commercial banks be required to deliver those services, which “would require legislation”.
By November 2025, RBNZ was telling the Minister that existing legislation might support regulations, while also considering new legislation. Its letter to banks encouraged a voluntary arrangement while noting that regulatory options were being explored.
It also considered providing the service itself while levying commercial banks for the cost of service provision.
Shortly before launch, RBNZ told the Minister that its current options were limited. It considered that it could provide the service itself and levy banks for the cost, with an Order in Council. It also sketched a possible Deposit Takers Act standard, but only after regulations and not before 2028. New primary legislation, it said, was the most direct route.
So the RBNZ clearly understood that, whatever the tone in the consultation documents, the RBNZ could not simply require commercial banks to open hundreds or thousands of new cash service outlets. That regulatory threat was the backstop against which ‘voluntary’ negotiations were to be undertaken.
The word ‘voluntary’ in these sorts of discussions is more than a little fraught. The Reserve Bank is the regulator of the commercial banks. Being offside with one’s regulator is risky. The process looked less like voluntary agreement than pressure to comply under a threat of doubtful authority.
The Governor was sent a January draft. The final paper, sent to her on 20 February, was not opened.
But her November induction briefing said only that the Reserve Bank was seeking agreement from the commercial banks and trialling its own Community Cash Services. It did not mention the unsettled legal authority or the contemplated regulatory and cost-recovery backstops.
Although the project was Board-monitored, there is no indication that the incoming Governor was adequately briefed that RBNZ had no present unilateral power to impose the proposal. Any mandatory route required at least Ministerial and Cabinet action. The Bank and its Board failed the incoming Governor.
To sum up: RBNZ proposed a service obligation it had no present ability to require. The prospect of compulsion, or levies if the RBNZ provided the service, was the backstop to the “voluntary” deal it sought.
Even if it had possessed the power, targeted subsidy in the limited places where service was warranted would have been more direct.
The best outcome now is a proper review of how this got out the door.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
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