Access to Cash

Andy Macdonald over at BusinessDesk asked me for comment on the ongoing RBNZ cash-access saga.

A snippet:

The New Zealand Initiative’s (NZI) chief economist, Eric Crampton, said it was “deeply concerning” that the RBNZ hadn’t sought Treasury and Crown Law advice on the consultation’s legal basis. “The [Reserve] bank has no express statutory power to mandate where banks provide retail cash services,” 

Crampton, who co-authored a column about this with Roger Partridge, said, “It [RBNZ] appears to be borrowing coercive prudential authority and deploying it where no such power exists.”

Roger Partridge and I wrote up a bit on it a couple weeks ago over at Newsroom. The short version: RBNZ is undertaking a consultation process over a proposal. Regardless of the outcome of that consultation process, RBNZ does not have the statutory authority to implement the proposal.

It isn't just that RBNZ very clearly does not have statutory authority to require commercial banks provide specified cash services in places where the banks view such services as not commercially viable. 

If you want a fun illustration of that, go over to Newsroom and look at the comments section. Comments there are always Mos Eisley spaceport. But sometimes they're a useful kind of awful. There you'll find former RBNZ board member and Vic Uni academic Chris Eichbaum grasping at implausible straws trying to find a statutory authority. He chides me and Roger for failing to refer to subpart 5 of the Reserve Bank Act, perhaps hoping that nobody would ever bother reading subpart 5. Precisely nothing in subpart 5 enables the RBNZ to compel service. Read it for yourself. I go line by line through it for Eichbaum, and there's really nothing there. 

And it also isn't just that the RBNZ's basic economics around the justification for the proposal is, frankly, flat-out wrong. Here's Martien Lubberink on that issue. 

It's also that the Reserve Bank asked Parliament to give it that power, and Parliament declined to do so despite having had two legislative opportunities. 

So. What the hell does the Reserve Bank think it's doing? Is the consultation process a lobbying effort trying to get public support for something that Parliament has not been inclined to allow RBNZ to do? Is it the RBNZ trying to strongarm the commercial banks into doing 'voluntarily' what RBNZ wants, despite the lack of statutory mandate, because of the risk that RBNZ can impose very large costs on regulated entities that displease it? Or did it simply not occur to the Bank that it does not have the statutory authority to enact its proposal - despite having asked Parliament a few years ago for that kind of authority?

I'd sent an OIA request through to RBNZ, hoping to figure out what the RBNZ thinks it's doing. That request:

Dear RBNZ,

We seek information about the future of cash workstream. RBNZ is consulting on a proposal that would require banks to provide additional cash services. We can see no authorisation in either the Reserve Bank Act or the Deposit Takers Act for this kind of regulatory imposition. So we are curious how it developed to be a proposal for external consultation.

We consequently would like to know:

1. Did the Reserve Bank consider whether it has the statutory authority to require banks to establish a national cash distribution network?
2. Without disclosing privileged legal advice, which section of the Reserve Bank Act or the Deposit Takers Act would the Bank view as providing that statutory authority?
3. In its 2019 consultation, the Reserve Bank suggested that new regulation-making powers be added to the Reserve Bank Act to be used if there were risk of significant reduction in access to cash. If the Bank now views itself as having statutory authority to compel businesses to establish a cash distribution network, why did it ask, in 2019, to be granted those powers? And did Parliament’s refusal to take up that opportunity in the Reserve Bank Act 2021 and the Deposit Takers Act 2023 enter into the Bank’s deliberations about the current policy proposal?

Please provide internal correspondence, memos, briefing notes, aide memoires, and any other documentation shedding light on these questions. I am particularly interested in any internal quality assurance process that this paper undertook, whether that process considered the Bank’s legal authority to undertake what was proposed, and whether the Board’s advice was sought as part of the process – particularly on the Bank’s statutory authority to impose the proposed requirements.

Request sent 4 March. On 26 March they punted it out to 2 June. 

So we still don't know what the heck RBNZ thinks it was doing. Perhaps RBNZ is trying to figure out what it thought it was doing. 

I expect that they will play motte-and-bailey with this, saying it's just a consultation and that they would only need statutory authority if they were going to actually implement the proposal. 

But that's inadequate when they have substantial discretionary power over the banks and a proposal like this can be viewed by those regulated by RBNZ as a requirement to 'voluntarily' come to some equivalent arrangement with RBNZ lest bad things happen under different aspects of the RBNZ's authority. And it's also inadequate where the consultation process can be viewed as an attempt to lobby Cabinet for an expansion of RBNZ powers that Parliament has already twice failed to provide. Should government agencies spend time and effort on public consultation processes aimed at swaying their Ministers? 

I will be interested to see the OIA materials. But it feels like substantial governance failures at the Bank. 

Addendum: see also Simon Jensen's piece at BusinessDesk from a few weeks ago.