Latest / Early Edition with Ryan Bridge / Shamubeel Eaqub: Simplicity Chief Economist on the debate over potentially loosening capital requirements for banks

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Shamubeel Eaqub: Simplicity Chief Economist on the debate over potentially loosening capital requirements for banks · Early Edition with Ryan Bridge

• 0:00
  Speaker 1: So Westpac calling for the Reserve Bank to relax capital requirements. Now,
• 0:04
  Speaker 1: the move would make it easier for banks to give
• 0:06
  Speaker 1: out loans. That's what Westpac thinks, and we'll put New
• 0:08
  Speaker 1: Zealand on par with countries like the UK and Australia.
• 0:11
  Speaker 1: And Chamom bier Lekub is the chief economist at Simplicity
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  Speaker 1: and joins me now, Hella Chamaville, good morning. So the
• 0:18
  Speaker 1: bank reckons that reducing the capital of the bank must
• 0:21
  Speaker 1: hold would reduce the costs of a four million dollar
• 0:24
  Speaker 1: farm loan by twenty grand? Are they right?
• 0:27
  Speaker 2: Yeah, it's a bit of right margin. So every time
• 0:30
  Speaker 2: the capital recommend grows up, banks to have to borrow
• 0:33
  Speaker 2: money more expensively, and so it kind of increases mortgage
• 0:37
  Speaker 2: rates by a butt zero point one percent to point
• 0:39
  Speaker 2: one five percent. It's not a huge amount, but it matters.
• 0:43
  Speaker 1: Yes, nobody sneezes at twenty grand. So if if Westpac
• 0:48
  Speaker 1: got its way and there was a reduction of capital,
• 0:51
  Speaker 1: would that make banks more vulnerable at these uncertain times?
• 0:54
  Speaker 1: Because that's why it was put in the first place.
• 0:57
  Speaker 2: Absolutely. I think that's really the big tread of is
• 1:00
  Speaker 2: do we think our banks are unsafe? I think the
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  Speaker 2: other way of looking at it is our bank's not
• 1:05
  Speaker 2: making enough money during the good and bad times. I
• 1:09
  Speaker 2: think the answer is they're making great money in great
• 1:12
  Speaker 2: times and in bad times. We just had a terrible
• 1:14
  Speaker 2: recession and they're still made billions of dollars in profits.
• 1:18
  Speaker 1: So would it help the economy recover faster?
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  Speaker 2: I don't think so. I don't think the bank capital
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  Speaker 2: is the reason why our banks are not lending enough money.
• 1:27
  Speaker 2: There are two things going on. One that our mortgage
• 1:29
  Speaker 2: rates are far too expensive. So on average, banks are
• 1:32
  Speaker 2: charging over two percent over their cost of borrowing, so
• 1:35
  Speaker 2: their mortgage rates are really high. So, for example, the
• 1:37
  Speaker 2: cheapest mortgage ratey can get right now, it's five percent
• 1:39
  Speaker 2: for two years. That's pretty high. You know, our kind
• 1:42
  Speaker 2: of floating rate at the moment is four point ninety
• 1:44
  Speaker 2: five percent, and so we are charging a lot less
• 1:46
  Speaker 2: at simplicity for our floating mortgages, but our banks are
• 1:49
  Speaker 2: still charging pretty big margins. That's the first big issue.
• 1:52
  Speaker 2: And the second is our banks is simply not lending
• 1:55
  Speaker 2: much money to businesses and farms that create long term
• 1:59
  Speaker 2: prosperity in using and that's part to our regulations which
• 2:03
  Speaker 2: helped bat lend more money to mortgages rather than to
• 2:06
  Speaker 2: businesses and farms.
• 2:08
  Speaker 1: So Mabel, I thank you for your time today.
• 2:11
  Speaker 2: For more from Early Edition with Ryan Bridge, listen live
• 2:14
  Speaker 2: to News Talks it'd be from five am weekdays, or
• 2:17
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