Revisionist RBNZ history

A couple years ago, the Initiative surveyed its members [update: and, Roger reminds me, a pile of other businesses - about 200 in all!] about their experiences with their regulators. It was less about whether they were happy with the outcomes that obtain, but whether the officials they deal with know the landscape, can make decisions - that sort of thing. It was a broad survey of our members about the regulators they deal with. 

The result was a report released early last year. I was a bit surprised that the RBNZ showed up poorly in its role as prudential regulator. Overall, it looked like proper governance boards mattered in regulator performance; Roger Partridge, the report author and our Chair, recommended that the RBNZ look to its governance structure.

Accordingly, we recommend that:

1. The board governance model should be adopted for all independent regulatory agencies in New Zealand, including the Commerce Commission and the RBNZ.
2. For the Commerce Commission, this should be achieved by:
   • reshaping the commissioner role so it is largely a governance (or board member) role, with substantial decision-making power delegated by the commissioners/board members to the commission’s CEO; and
   • broadening the skills set of the commissioner/board members of the commission to include members with industry expertise.
3. For the RBNZ, this should be achieved by:
   • legislative reforms that make the RBNZ governor accountable to the RBNZ board for the exercise of prudential regulatory policymaking and decision-making power; and
   • broadening the skills set of the RBNZ board to include more banking and insurance expertise.

The report was released just as Governor Orr was coming in; the results couldn't possibly reflect on his Governorship.

He welcomed the report at the time. Here's Hamish Rutherford from April 2018:

Adrian Orr, the new governor of the Reserve Bank, has written to the chief executives and chairs of New Zealand's banks alerting them to a damning report fed by their anonymised comments.

An improbable star of New Zealand finance, Orr, 55, started in the role on March 27, arriving at a central bank which he acknowledges is under fire.

"This place is a diamond, but it needs significant polishing in places," Orr said in an interview in the Reserve Bank headquarters.

"We need to think much harder about how we behave, how we roll, how we explain, how we do things. That's a cultural challenge for the bank."

A survey by think tank the New Zealand Initiative, released on April 13, drawing responses from "some of New Zealand's largest financial institutions" had most respondents claiming the bank's consultation and engagement was poor.

Respondents did not believe management was well-respected, did not find staff constructive and most said the bank did not learn from its mistakes. Verbatim comments from the survey would make for difficult reading for Reserve Bank staff.

"RBNZ [staff are] completely divorced from the reality of how things are done," one told the survey. Another described the bank as "archaic", adding that entrenched officials "don't get challenged".

Written by NZ Initiative chairman Roger Partridge, a former executive chairman of leading law firm Bell Gully, the report gained limited attention in the days after its release.

But Orr has decided to amplify the message, acknowledging the bank's reputation is below what he believes it could be.

As well as posting the comments of the report on the Reserve Bank's internal intranet, Orr had written to bank bosses with the message that: "Hey, this doesn't print well. We hear you. We need to do something about it."

He expected that writing the letter and making public statements would elicit "free, unsolicited advice about how this place can do better".

His letter to the chairs of New Zealand's banks will mean he has written to former prime minister Sir John Key, who is now chair of ANZ New Zealand, alerting him to criticisms that Key probably be familiar with.

The approach of the bank to contact with both the media and the organisations it regulated had been "highly transactional," Orr said.

"It needs to be more strategic, about building that reputation, targeting the things we want to be world best at, letting other things go."

We were really happy with that response; it seemed exactly right. It was encouraging.

And so I was a bit surprised to have these comments of Orr in interview with the NBR's Tim Hunter passed along to me. Subscribers might find it here; I'm on the wrong side of the paywall.

“When I turned up as governor [in March last year] and I walked into this vacuum, the first thing I received was a NZ Initiative report on how we don’t ring, we don’t write, we don’t come to see you, we don’t explain ... this damning report where they’d interviewed eight people.”

The report was the NZ Initiative’s Who guards the guards report from April last year, which found fault with the RBNZ’s governance.

“I felt the bank had almost become a free hit and it was fine just to criticise or throw things at the bank,” Orr. said

“So I deliberately removed the ‘free’ component of that to say ‘well hang on, if you say that, expect to be questioned’.

“We are humans behind this concept called the central bank. You can’t just abuse us. It’s hashtag not ok.

“That we wanted to be open, accessible, and not put up with abuse, came as the biggest shock to the usual customers or the usual behaviour.”

Orr's historical revisionism was a bit surprising, since he was in print last year saying the exact opposite of what he's now saying. He had seemed sincere last year in his welcoming of the report.

The survey overall (lots of members over lots of regulators) was rather broader than "8 people". The number of people who Roger surveyed who deal with the Reserve Bank on prudential regulation won't be huge, sure, but the population of people in the banks who deal with prudential regulation and interface with the Reserve Bank is not vast; our survey went to those on point. A survey of 2000 random-draw members of the public would have been bigger, but utterly useless.

Orr has been far less a fan of our criticisms of the process around the changes in the bank capital requirements, where we have strongly urged that there be a consultation round allowing for testing of the Bank's cost-benefit assessment - which was only published along with the final regulations with no opportunity for such testing.

I've also been critical of the Bank's taking on too many objectives as part of its prudential regulation.

I don't know whether any of that's caused any change in views of our report released last year.

It feels like a revisionist history though, and it's a bit disappointing that the NBR didn't notice the change.