Archive for the 'Reserve Bank' Category

Unemployed present human face to bankers

Unemployed workers in Wellington did a tour of banks – the Reserve Bank, Westpac, ANZ and BNZ to show the human side of unemployment.

After a BNZ economist said that unemployment was ‘artificially low’, unemployed people wanted to send a message that job loss was devastating for families and communities – and more than a statistic.

Finsec General Secretary Andrew Casidy said that banks needed to show an interest in employment. “They can show this through their own employment practices, by investing in jobs when their profits are rising and not sending jobs offshore. They can also show this to their customers with fair interest rates.”

“The banks need to recognise the human cost of unemployment,” said Casidy.


Reserve Bank staff settle for 2%

Finsec members at the Reserve Bank voted this week to ratify a collective agreement featuring a 2% pay increase and a one year term.

While this was a big improvement on the employer’s initial offer of 1.25%, the deal reflects the Reserve Bank’s pay philosophy of taking a modest approach which cannot be seen to be ‘leading’ pay rise expectations in either the private or public sector.

Government and Reserve Bank can stop ANZ National offshoring in national interest

Finsec is calling on the Reserve Bank to step in and prevent ANZ National from sending 500 jobs and key bank functions to India and for the Government to support such a move.

“The Reserve Bank can protect New Zealand jobs. We are calling on the Reserve Bank to use all mechanisms it currently has and develop more if needed to stop this unnecessary attack on New Zealand workers and bank customers,” said Finsec Campaigns Director Andrew Campbell.

“The Reserve Bank can and should protect New Zealand bank customers from the risk posed by the proposal. If there is any failure of the operation in Bangalore, the impact on the bank’s ability to operate, ensure customer’s access to funds and meet their other requirements could all be in question,” said Campbell.

In addition Finsec is calling for a change to Reserve Bank outsourcing policy by introducing a national interest provision, as the Government has done to the Overseas Investment Act. Campbell said the stability of our banking system is of huge strategic importance to New Zealand and needs to protected.

OCR held, Finsec in the news on interest rates

Finsec is calling on communities to hold banks to greater account for their interest rate increases, in the wake of the Reserve Bank decision to leave the Official Cash Rate (OCR) unchanged at 8.25 percent. 

Finsec Campaigns Director Andrew Campbell said that the banking sector now needed to be even more mindful of public concern about their recent interest rate grabs. “New Zealanders are demanding more of our richest and biggest corporate citizens. The Reserve Bank decision makes the latest round of interest rate rises even more difficult to explain and they are out of touch with public policy and popular opinion.”

 Finsec has been able to bring a level of public debate to last week’s ANZ National’s interest rate increases through extensive media coverage, including the two TV3 stories linked below:

Reserve Bank gives credence to Finsec concerns about debt

Economics DogThe Reserve Bank has just released its 2007 Annual Report which notes that New Zealand’s financial systems and banks are generally in good nick.  However it also takes time to highlight similar risks to the New Zealand economy that Finsec has been discussing in recent years: the possible negative impact on the economy of banks continuing to focus on raising household debt rather than improving savings and customer service, and the negative impact that foreign owned banks are having on our current account deficit by not reinvesting enough back into New Zealand’s local communities.

“New Zealand’s current account deficit continues to grow, fanned by domestic savings-investment imbalances and high levels of household debt. Much of the debt has been funnelled into the housing market, putting upward pressure on house prices. Part of the growth in mortgage debt has involved some banks offering new mortgages that require little or no borrower deposit (high loan-to-value loans). Some households’ ability to service this debt has continued to deteriorate.” (p27)

 “Record levels of household debt, combined with stretched house prices, leaves the New Zealand economy and its banking system relatively more exposed to negative economic shocks. Slower economic growth would put more strain on household debt servicing obligations… Large and persistent saving and investment imbalances raise the possibility of a disorderly correction in foreign exchange and capital markets.” (p30)

(thanks to Collinson for the photo)

New Zealand, the branch economy

Small branch economy Brian Gaynor at the Herald has an interesting column on foreign ownership this week. The BNZ figures prominently in the story as a case study in how not to bring foreign investment into the country.

Gaynor also quotes John Stewart, CEO National Australia Bank (which now owns the BNZ), who recently told the Australian Financial Review that the Australian Government shouldn’t allow foreign takeovers of the four main banks because;

“Australia might end up as a branch economy, not dissimilar to the way New Zealand is now.”

It raises some interesting questions if the CEO of an Australian company that owns a major and significant New Zealand business does not want his Australian company to end up like his New Zealand one; How much does he care about that New Zealand company and what is he doing to address his concerns?

While it would be nice for New Zealand to own its on major strategic banks, that horse may well have bolted. It’s helpful to remember though that foreign investors are guests here using our resources and workers to turn a profit – much of which they often take back overseas with them. Foreign investors have a valuable role to play in our economy, but they need to go about it responsibly making sure that kiwis benefit from the exchange too.

For Finsec this raises two issues. The first is whether the Reserve Bank needs to improve its provisions in relation to purchase and sale of banks by including stronger national interest considerations. The second issue is that important economic banking decisions are now made in Sydney not Auckland. These include decisions not just about the working conditions and well being of bank workers, but also about important Better Banks issues like the the quality of customer service, investment back in local communities and bank’s responsibilities to the country is which they do business. What does this mean for the kind of union that Finsec needs to be to influence these decisions?

(thanks to wonderferret for the photo and a hat-tip to frogblog)

Overseas debt grows as banks continue to lend and borrow

debt fortune cookieThe major banks’ pressure to sell lending products to New Zealanders (and fund it with overseas borrowing) continues to manifest itself in our growing overseas debt. Statistics New Zealand now refers to bank lending and profits by large foreign owned companies as significant contributors to our financial situation and, in his comments on the statistics, the Minister of Finance does likewise. This month the Reserve Bank had to intervene in New Zealand’s foreign exchange market for the first time since 1985.

It seems that no matter how well the rest of the economy performs it cannot keep up with a foreign-owned financial sector determined to lend and grow. As long as New Zealand continues to borrow more than it earns our economy will remain at risk, particularly as our dollar continues to rise and threaten our export led economy.

Part of the problem probably with New Zealanders’ spend and borrow culture and part probably lies with government policy. But we believe that at the centre of the issue is the pressure banks continue to place on their staff to make the sale and increase profits beyond sustainable limits. If banks expect to make 10 percent or more increases in profit each year, which they currently seem to do, then simply and crudely put that means 10% more lending each year.

(thanks to idiolector for the photo)

Reserve Bank joins call for banks to fight inflation

Grant SpencerThe Reserve Bank appeared to reflect Finsec sentiments earlier this week when it argued that banks need to think about broader economic imbalances. Deputy Governor, Grant Spencer, agreed that banks are managing their individual risks adequately, but continued:

“However, it is not clear that banks are taking appropriate account of the systemic risks associated with the rapid growth in their aggregate lending.”

Likewise, the CTU has called for bank economists to stop blaming inflation on low unemployment and look to their own bank behaviour. CTU President, Ross Wilson, noted:

“In a tight housing market such as we have experienced in the last few years we get very high price rises – a 38.5% rise between 2004 and 2006 – but in a tight labour market, we have been getting only modest wage increases.”

“So banks should look in the mirror. They are borrowing huge sums offshore, driving up the current account deficit and helping fuel house price inflation that is forcing houses way out of reach for workers trying to buy their first home.”

Finsec continues to argue that one way inflationary pressure can be reduced is for banks to stop pressuring staff to sell debt products such as mortgages at the expense of high quality customer service.

(thanks to the Reserve Bank for the photo)

Reserve Bank members win 2% KiwiSaver subsidy

 Kiwi in Doubtfull sound ;-) Finsec members have just reached a settlement with the Reserve Bank after two days of positive negotiations. The new two-year agreement will see a pay rise of 3% in the first year and 3.5% in the second.

A feature of the agreement is that the bank will lead the finance sector by introducing a 2% subsidy, worth about $1000 in employer contributions, for Finsec members who opt into KiwiSaver.

KiwiSaver is a government initiated retirement savings scheme that starts on 1 July. It begins with a $1,000 tax-free contribution from the government. Anyone aged 18-65 will be able to join a KiwiSaver scheme. They can contribute either 4% or 8% of their gross wage or salary to KiwiSaver, and employers (such as the Reserve Bank) have the option to pay some of that 4% 0r 8% through an employer subsidy. Workers will also be able to use their KiwiSaver savings as a deposit to help purchase a first home.

(Dank je wel Jukkie voor de foto)

Monetary policy needs to consider incomes

A guest comment by CTU Economist, Peter Conway

Peter Conway2007 has begun with continued debate about monetary policy. On the one hand, the housing market in particular (and some economists argue the tight labour market also) imply that interest rates should rise, whereas other economists are arguing that the easing rate of annual inflation along with a higher exchange rate and modest GDP growth justify holding the official cash rate at 7.25%.

Monetary policy is about the medium term. The inflationary pressures that concern the Reserve Bank are not about 2007, as we know inflation is falling. There are also financial stability concerns due to the huge increases in debt that households have taken on while house prices have doubled in the last 5 years. Debt levels doubled also in that period as a proportion of household income with over 13% of income now servicing debt). But incomes rose by under a quarter in that period. How households cope with that level of debt if and when the housing market slows is a real issue.

To a large extent the key economic issues are structural rather than cyclical. We have gone through a relatively soft landing and growth is now picking up. But the structural weaknesses such as embedded low wages, low levels of labour productivity and poor levels of savings are the major concerns. High house prices and high levels of household debt combine with repatriation of profits to overseas owned firms based in New Zealand to produce a huge current account deficit. None of these issues are easy to address. Some form of capital gains tax on investment property would help a bit but that would require a very broad political consensus. More could be done to encourage local ownership of firms including more active promotion of joint ventures. A multi-faceted approach is needed to lift wages. Specific attention needs to be given to low pay including in the state sector, but the key is more widespread collective bargaining, particularly at a multi-employer or industry level.

With lower inflation this year there may be opportunities for an increase in real wages and also negotiated employer contributions to KiwiSaver, but in the long run another key to higher wages is improved productivity. Much is being done to address this but the time lags are considerable before we see improved productivity from higher investment in skills, infrastructure and technology. In addition, we have high labour market churn. Unemployment may be low compared with the 1990s but we still have large layoffs occurring, and some 700,000 people out of a labour market of 2 million people start a new job each year. This mobility is a good thing up to a point, but it is hard to build skills and firm specific knowledge when there is such a huge churn.

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