MonopolyWatch NZ Proposes Terms Of Reference For Banking Market Study

Auckland, 28 February 2023 — MonopolyWatch today proposed draft terms of reference for the Commerce Commission to consider and include in a Market Study of the Banking Sector.

The study, to be conducted pursuant to the Commission’s obligations under section 51 of Part 3A of the Commerce Act 1986, will investigate any factors that may affect competition for the supply or acquisition of retail and small business banking services by banks in New Zealand. This study will provide an opportunity to consider and evaluate whether competition in the banking industry is promoting outcomes that benefit New Zealand consumers over the long term.

“We mean no disrespect to the Commission by publishing these proposed terms of reference,” says MonopolyWatch spokesperson, Tex Edwards. “We have taken this unusual step for three reasons. Firstly, we believe that the banking sector has for long enjoyed excessive profits at the expense of ordinary New Zealanders and has proven resistant to competitive pressures.

“Secondly, the study is only the first stage in what will be a long and bitter and contested struggle. Because sector inequities continue to affect the lives and physical and mental wellbeing of everyday New Zealanders, the study needs to be initiated with urgency: this is an attempt to help it gather some initial momentum.

“Thirdly given the disproportionate financial, legal, political, social and commercial forces that the sector can bring to bear, the Commission will need all the support it can muster to undertake a Market Study and make recommendations.

“It will be a battle between David and Goliath. We’re helping gather stones for the David’s slingshot.”

Draft Terms of Reference

MonopolyWatch respectfully suggests that the Commission consider the following matters, amongst others, in the study:

Structure and competition

1. The structure of the NZ retail and small business banking industry at both the wholesale and retail levels.

2. The nature of competition at the wholesale and retail levels of the banking industry.

3. What is OECD international best practice in banking competition, and what model should NZ base its reforms and aspirations around.

Pricing and margins

4. The pricing practices and banking margins of the major banks, in particular identifying why NZ retail mortgage markets have margins four times the OCED benchmark;

5. Why do the reasons given to support Moody’s , S & P and Fitch Ratings of the Banks differ from the Banks’ own public disclosures profitability.[1]

6. Have the New Capital adequacy rules & BIS regulations, actually increased the cost basis of the banks or are they an excuse to raise margins?

7. What is the banks’ treasury strategy for funding long term mortgage commitments, does this prohibit longer dated fixed mortgages. US consumers benefit from 10 to 30 years fixed. Should a similar regime be introduced here?

Barriers to entry

8. What can be done to help bank competition from new entrants, in particular other NZ owned banks and co -ops and what can help them?

9. Why has Kiwibank failed to ignite competition in the banking sector? Does it have like-for-like infrastructure and customer ecosystem . Does KiwiBank end up with customers that the big four don’t want?

10. By what date does bank account number portability need to introduced into NZ , to facilitate easy switching for customers.[2]

Behaviour

11. Should banking lobbyists be regulated? Should there be a 3 year stand down period before Cabinet Ministers become Bank Directors in line with to OECD best practice?

12. What impact to industry associations and regulators, like INFINZ , FMA , Bankers Association , RBNZ have on countering excessive profitability and benign competition? DO they address the issue or does their existence effectively shelter behaviour and practices that are not in consumers’ best long-term interests?,

13. How are NZ banks able to game the government by seeming to embrace open banking and delaying to bank a/c number portability, rather than speedily introducing international best practice.

Services

14. Has the pathway to digital banking treated all customers equally, are elderly customers being looked after in the digital era?

15. Do banks have enough skilled middle management to deal with problems, such as real estate recessions, natural disasters and changed economic circumstances?

16. Should the Australian banks be forced to list their NZ operations as a formula for keeping this critical industry’s activities disclosed to their consumers.

Māori

The Commission must acknowledge its obligations under Te Tiriti o Waitangi and stay committed to engaging with Māori to hear the perspectives which are relevant to this study and having regard to a Te Ao Māori view as part of the engagement process.

17. Are Māori adequately represented in the banking industry?

18. Is the “payday” lending industry exploiting Māori and Pasifika

19. Do we need a Māori Banking commissioner, to support financial literacy in the Māori and Pasifika communities.

20. Should “pay day” lenders and fringe finance companies be folded into the bank regulators activities.

21. Do Marae finance and financial arrangements, need bespoke analysis and support to bring ensure they are making best use of digital banking technologies?

MonopolyWatch expects that, using some of these questions as starting point, the Commerce Commission should be able make its final report for this study publicly available by 8 Sept 2024.

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