ROGER PARTRIDGE: The hidden cost of excessive regulation
- Administrator
- Oct 4
- 2 min read
Every time New Zealanders apply for a mortgage or business loan, they pay the price for the Reserve Bank’s controversial 2019 bank capital decision to increase capital requirements for major banks by almost 100%.
The decision made our banks much more heavily capitalised than most of their international peers. This extreme conservatism targeted a novel “one-in-200-year” risk of bank failure. The standard benchmark is one-in-100-years.
The RBNZ finally acknowledged the need to review its approach in March – just four weeks after Governor Adrian Orr’s shock resignation.
Submissions on the RBNZ’s consultation paper close today. Yet, what is on offer are only cosmetic tweaks.
The 2019 decision came with acknowledged costs. The RBNZ estimated it could reduce GDP by up to 0.32% annually. Independent analysts put the figure higher. Tellingly, no other central bank has followed New Zealand’s extreme approach.
The Bank’s decision-making process was controversial at the time and remains so now. The RBNZ failed to include its cost-benefit analysis in the consultation process. Its dramatic departure from international norms required rigorous justification. The cost-benefit analysis should have been tested through public consultation.
The current review includes valuable international analysis. Oliver Wyman’s RBNZ-commissioned report confirms New Zealand banks hold around 21% in capital buffers. This will increase to 25% when the 2019 decision is fully implemented. Most peer countries hold 13-19%. Yet the RBNZ’s review proposes maintaining New Zealand as a comparative international outlier.
When bank capital requirements are excessive, the real victims are New Zealand borrowers. The banks themselves will adapt. But borrowers will face higher costs and constrained credit. The question is whether this serves New Zealanders’ economic interests.
Earlier this year, Parliament’s Finance and Expenditure Select Committee heard extensive evidence about these concerns. The Committee recommended an independent review of the 2019 decision.
The RBNZ released its consultation document just days later, pressing ahead rather than pausing to consider Parliament's concerns.
Finance Minister Nicola Willis has the tools to demand better. Her December 2024 Financial Policy Remit directs the RBNZ to “encourage efficient provision of financial services.”
The RBNZ’s review should be paused to allow Willis to commission Treasury to conduct the independent review Parliament requested.
Roger Partridge's submission, 2025 Review of Key Capital Settings, was lodged on 2 October 2025. This article was sourced from the NZ Initiative weekly Insights newsletter.
A good post from Roger and I did also read his submission to the Select Committee.
I think both the lack of comment, and the poor quality of comment (on this website and elsewhere) demonstrate the lack of understanding by the general public on this topic.
I don't think people generally understand a number of things about bank balance sheets.
1 The size of a bank balance sheet. Add maybe 3 or 6 zeros when compared the biggest non bank companies in NZ.
2 Banks have very little capital if compared to non banks. Can you imagine a property company or F and P Healthcare existing on 10 % capital?
3 If a big bank does fail, the consequences are…
NZ has no gold; it went by 1991. It'd be worth a lot now, but unless there are souvenir coins, then we have no real national fiscal standing other than creditworthiness - the trust consumers have in the system. The retail banks now effectively control the Reserve Bank by being its source of capital return. They can dictate their own interest rates (inflation). They control the consumer/voter and, from a distance, can manoeuvre government policy. They are the national reserve. This capital demand is a reinsurance for the high street banks, or Protection, as it's also known.
Did anyone vote for bank wards?
Oh dear gold.
This really is frontier land. No wonder everyone's looking at controlling councils and coastlines.…
This is simply an extension of the left wing styled, big brother govt policy we're increasingly subjected to, where the aim is to control the population. Notably this change took place under Ardern's regime, & notably the current govt has done nothing.
We are poorly served by elected representatives, even worse served by the unelected ones.
Every time New Zealanders apply for a mortgage or business loan, they pay the price for the Reserve Bank’s controversial 2019 bank capital decision to increase capital requirements for major banks by almost 100%.
Really..... Please explain.
Because:
If my lawn mowing business has to increase its ownership in my mower by another %100 does that mean I increase my fees to cut grass.
Or does some regulator within the grass cutting union hiding in a trades hall (Beehive) in Wellington stipulate a change to the fees on my behalf
FFS
The only answer to over regulation (ever increasing costs) is to deregulate, so to decrease costs.
Besides .....An open and free marketplace ensures a market whereby freedom is practiced…
The whole concept of fractional banking is a complete rort. You talk about New Zealand banks, all bar two are overseas owned. They are here because of the cozy cartel of most businesses operating here as we don’t have enough scale for real competition in a deregulated market. Nothing backs our FIAT currency or government borrowing. The reserve bank owns no gold or other assets for which the New Zealand peso can be exchanged. Our biggest problems in our economy are 1. untaxed profits going offshore via transfer pricing and royalties (example Google / Facebook) , 2. overseas ownership of all major providers of day to day essentials like fuel, groceries, waste management, insurance etc who operate here because the…