‘Big four’ banks failed farmers in recession year
16/11/09 09:00 Filed in: Columns
It’s official; the ‘big four’ Australian owned banks failed to pass on the Reserve Bank’s cut in interest rates (the Official Cash Rate or the OCR) and farmers, New Zealand businesses and home owners paid heavily during the worst recession this country has seen since the 1930s.
If you’re a farmer, you already know this because this has been a tough year; not only are you a farmer running your own business, but you’re likely to be a home owner too with a mortgage. You know what it felt like personally. Here’s what the numbers looked like for 2009:
The Reserve Bank cut the OCR from its high in mid 2008 of 8.25 per cent, to only 2.5 per cent today. But a one per cent margin in interest rates was not passed on by the big banks to their customers, to farmers, businesses and home owners. The banks kept it for themselves.
One per cent extra interest added $787 million in costs for New Zealand businesses; and $460 million extra to the cost of loans in the farming sector.
The biggest cost was in the housing sector: home owners paid an extra $1.6 billion in mortgage repayments thanks to the banks holding back that one per cent for themselves.
This tells us it doesn’t matter what the Reserve Bank does with interest rates; the big Australian-owned banks will do whatever they want. Changing the OCR rate to try and help businesses or home owners during hard times hasn’t worked.
All New Zealanders should be worried about that. At the moment the banks have every incentive to borrow more money from overseas so that they can keep lending to anyone wanting to invest in property. They don’t care that this will likely kick start another housing boom and increase New Zealand’s debt, and possibly lead to another recession. It’s not their job to care.
It is the job of the government to care.
I was part of the Banking Inquiry, along with my colleagues in the Labour Party and the Greens. The parliamentary parties who weren’t there should be ashamed. It’s not good enough to say ‘there’s nothing we can do’ to support those who trade with the world and are at the whim of volatile exchange rates and high interest rates at the banks.
We have to find new tools and new ways to support exporters -to support people who produce things rather than those who speculate on properties and take their money off-shore. Otherwise our overseas debt will continue to grow and our quality of life will slip while the property investors get rich.
I want to see an urgent multi-party review of monetary policy. And this time, the government must be there, along with the Reserve Bank. The National Party, Act, The Maori Party and United owe it to New Zealanders to look at the ideas that came up during the Banking Inquiry - from Federated Farmers, the Council for Trade Unions, the Manufacturers and Exporters Association and many others.
We need to look at how we can remove incentives to invest in property, and instead encourage banks to lend to businesses. This could mean a review of our tax system which at the moment encourages unproductive property investment and discourages investment in the productive tradeable good export sector.
We need to look at ways of regulating the banking sector so that ordinary New Zealanders don’t pay (in interest rates or hidden bank fees) while the Australian-owned banks make a profit and take the money off-shore.
It will not be good enough for the government to stand on the side-lines next time, and say “There’s nothing we can do”. There’s always more we can do. We just need the political will to do it.
If you’re a farmer, you already know this because this has been a tough year; not only are you a farmer running your own business, but you’re likely to be a home owner too with a mortgage. You know what it felt like personally. Here’s what the numbers looked like for 2009:
The Reserve Bank cut the OCR from its high in mid 2008 of 8.25 per cent, to only 2.5 per cent today. But a one per cent margin in interest rates was not passed on by the big banks to their customers, to farmers, businesses and home owners. The banks kept it for themselves.
One per cent extra interest added $787 million in costs for New Zealand businesses; and $460 million extra to the cost of loans in the farming sector.
The biggest cost was in the housing sector: home owners paid an extra $1.6 billion in mortgage repayments thanks to the banks holding back that one per cent for themselves.
This tells us it doesn’t matter what the Reserve Bank does with interest rates; the big Australian-owned banks will do whatever they want. Changing the OCR rate to try and help businesses or home owners during hard times hasn’t worked.
All New Zealanders should be worried about that. At the moment the banks have every incentive to borrow more money from overseas so that they can keep lending to anyone wanting to invest in property. They don’t care that this will likely kick start another housing boom and increase New Zealand’s debt, and possibly lead to another recession. It’s not their job to care.
It is the job of the government to care.
I was part of the Banking Inquiry, along with my colleagues in the Labour Party and the Greens. The parliamentary parties who weren’t there should be ashamed. It’s not good enough to say ‘there’s nothing we can do’ to support those who trade with the world and are at the whim of volatile exchange rates and high interest rates at the banks.
We have to find new tools and new ways to support exporters -to support people who produce things rather than those who speculate on properties and take their money off-shore. Otherwise our overseas debt will continue to grow and our quality of life will slip while the property investors get rich.
I want to see an urgent multi-party review of monetary policy. And this time, the government must be there, along with the Reserve Bank. The National Party, Act, The Maori Party and United owe it to New Zealanders to look at the ideas that came up during the Banking Inquiry - from Federated Farmers, the Council for Trade Unions, the Manufacturers and Exporters Association and many others.
We need to look at how we can remove incentives to invest in property, and instead encourage banks to lend to businesses. This could mean a review of our tax system which at the moment encourages unproductive property investment and discourages investment in the productive tradeable good export sector.
We need to look at ways of regulating the banking sector so that ordinary New Zealanders don’t pay (in interest rates or hidden bank fees) while the Australian-owned banks make a profit and take the money off-shore.
It will not be good enough for the government to stand on the side-lines next time, and say “There’s nothing we can do”. There’s always more we can do. We just need the political will to do it.