Latest / Best of Business / Jenee Tibshraeny: NZ Herald Wellington business editor on the Commerce Commission's suggestions to improve banking competition

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Jenee Tibshraeny: NZ Herald Wellington business editor on the Commerce Commission's suggestions to improve banking competition · Best of Business

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• 0:16
  Speaker 2: It's with me right now. We've got Jane TIBs Trainey,
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  Speaker 2: the Herald's Wellington Business editor. Hello, Jenne, hey, Heather. Now
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  Speaker 2: have you seen the proposed changes to the deposit compost
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  Speaker 2: scheme in the banking study I have?
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  Speaker 3: So the Commics Commission, one of its findings recommendations to
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  Speaker 3: improve competition in the banking sector is for Nikola Willis
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  Speaker 3: to put more emphasis on competition than financial stability when
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  Speaker 3: she decides how this new deposit compensation scheme is going
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  Speaker 3: to be funded. So for people listening, this is a
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  Speaker 3: scheme that will take effect mid next year. It means
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  Speaker 3: that if your deposit taker, your bank, your credit union collapses,
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  Speaker 3: you'll get up to one hundred thousand dollars of your
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  Speaker 3: money back at the moment. If it collapses, you might
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  Speaker 3: get nothing back. So the thorny issue with this is
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  Speaker 3: is that it's going to be funded by deposit takers
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  Speaker 3: paying leads into a fund. The Comments Commission reckons the
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  Speaker 3: levee should be flat. The Reserve Bank reckons the levee
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  Speaker 3: should be risk based. So you know, risky finance company
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  Speaker 3: should pay more than a low risk bank. Nicolahls needs
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  Speaker 3: to decide which way she's going to go, so a
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  Speaker 3: bit of a test coming up for Nicolohlis.
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  Speaker 2: There is the thinking here that if it's risk based,
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  Speaker 2: you are not going to put your money into the
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  Speaker 2: risky stuff because it's going to cost your money. But
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  Speaker 2: if it's flat, it just increases competition because it doesn't
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  Speaker 2: matter where you put it, you're paying the same. Yeah.
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  Speaker 3: Look, the thing is is that if the small players,
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  Speaker 3: like the finance companies, they are risky. They are saying
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  Speaker 3: they don't want to pay higher levees into this fund
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  Speaker 3: to reflect the risk because they all hit their bottom lines,
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  Speaker 3: it will hit their profitability. So that's saying look, government,
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  Speaker 3: if you really care about competition and if you want
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  Speaker 3: to support us to compete with the big banks, then
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  Speaker 3: don't make the levees risk based. But the Resis Bank
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  Speaker 3: is saying, well, look, everything in the financial system is
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  Speaker 3: risk based. I mean, like, the pricing of risk is
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  Speaker 3: at the very heart of how the finance system works,
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  Speaker 3: and it's important because you know, it incentivizes good behavior
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  Speaker 3: and avoids the creation of a moral hazard. So two
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  Speaker 3: quite different schools of thought there. And I know it
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  Speaker 3: sounds rather technical, but everyone knows that if your bank,
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  Speaker 3: call your finance company or whatever, if they charged higher
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  Speaker 3: levees to support this new insurance scheme, that comes back
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  Speaker 3: on us as consumers. So the way the government divides
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  Speaker 3: the cost of that scheme, you know, it's just something
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  Speaker 3: that is quite significant and will show you know how
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  Speaker 3: much it puts away on competition versus on financial stability.
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  Speaker 2: It's really interesting how there's heaps in there, you know.
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  Speaker 2: Thanks so much to know to Training, The Herald's Wellington
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  Speaker 2: Business editor.
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