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Chris Ford: Banks Need To Be Nationalised To Stop Them Gouging Us!

Contributor:
Chris Ford
Chris Ford

Parliament's finance and expenditure select committee yesterday released a report accusing the banking sector of gouging at the expense of ordinary customers like you and me at a time of global recession.

The report was ordered after retail banks, such as ANZ-National, Bank of New Zealand and Westpac failed to pass on cuts in the official cash rate (OCR) that have been ordered by the Reserve Bank onto their mortgage paying customers who have only experienced increases in their interest rates.

The report recommends that banks act to pass interest rate cuts onto their clients and maintain liquidity flows to ensure sufficient lending to both individuals and businesses during the current downturn and into the future. All very well said and done but this recommendation lacks any teeth and is the equivalent of a wet bus ticket lashing for the banks. Responding to the committee's report, the ANZ-National Bank's CEO Jenny Fagg said that banks were still being impacted by the higher cost of the Government's bank deposit guarantee scheme. To be honest, I don't understand why this is as the state is guaranteeing the banks and in the event of any one bank collapsing, the state will carry the bill and not the banks.

Another critical issue that the finance and expenditure select committee did not cover was that of bank charges. For us ordinary bank customers, we get our pockets emptied at the end of each month through a slew of charges which include account transaction fees, electronic transaction fees, bank account maintenance fees, in fact the charges that banks seem to dream up are never ending.

Driving wholesale interest rates down will take more than just a number of politicians giving the banks a serious talking to. What will do it is a change to legislation and more specifically the Reserve Bank Act. Currently this legislation mandates the fighting of inflation as the nation's number one economic priority. In other words, it prescribes monetarism which has been found to have had detrimental economic and social effects wherever it has been imposed internationally. Therefore, the Reserve Bank doesn't have to take into account (as it had to prior to 1989) other macroeconomic objectives like the maintenance of full employment as well as stability in the balance of payments and terms of trade. Until David Caygill, as finance minister, passed this legislation under the auspecies of the fourth Labour Government, price stability was just one of a series of objectives that the bank had to account for in the setting of monetary policy. Now the Reserve Bank can jack up interest rates, even in times of mild reflationary conditions, in order to kill off economic activity.

A second policy change would be one that the banks here might dread but which has already been applied to ailing banks overseas - that of outright nationalisation by the state. While our banks are in no immediate danger of collapse compared to those that have been nationalised in Britain, Ireland, the US and Europe, the behaviour of New Zealand banks in terms of keeping interest rates high and hideously overcharging customers is reason enough to bring them into public ownership and therefore under democratic control.

To those who would say that this policy would be sheer madness and folly, may I respond in one word - Kiwibank. This publicly owned bank has been a huge success story and one of the things that I am most proud of the Alliance Party for in fighting for its establishment while in government. It is profitable and this has been done without applying the horrendous charges and fees that its multinational competitors impose on their customers. Admittedly though, I am not yet a Kiwibank member as I am still paying off a personal loan through my current bank, the ANZ-National Bank. But if the National Government doesn't privatise it (as it might yet do in the future) then I will join.

All of these measures would add up to a better deal for customers in that with public ownership would come the ability to more apply tighter regulations and improve accountability. With the repeal of the current Reserve Bank Act and its replacement with new legislation making the bank accountable to Parliament and with a mandate to maintain sustainable levels of full employment and ecologically and socially friendly economic growth, then it will be possible for ordinary New Zealanders to enjoy the benefits of fair interest rates and low bank charges.

It's not enough to just send the banks into the equivalent of the parliamentary principal's office for a roasting - more serious action is needed and now!

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