June '18 - Oct '18
Banks Crying Crocodile Tears Over Higher Capital Requirements
20 May 2019
Social Credit is accusing the New Zealand Bankers Association of crying crocodile tears over the Reserve Bank's proposals for banks to hold higher capital ratios.
Party leader Chris Leitch says any extra costs involved in the higher capital ratios should not be passed on to consumers nor should they hurt the economy.
Those pronouncements are simply scare mongering by the Bankers Association in support of the big banks they represent.
It should be remembered that every single loan a bank grants to a borrower is created by the bank out of thin air. Banks don't lend money people have deposited with them. They create new money in the process of lending.
This was confirmed by the Bank of England in two reports it produced in 2014 as highlighted by investment specialist Brian Gaynor in a NZ Herald column on the 9th of February. The Bank of England report noted "Whenever a bank makes a loan it simultaneously creates a matching deposit in the borrower’s bank account thereby creating new money."
This ‘licence to print money’ has seen substantial year on year profit increases by the four big overseas owned banks which saw them pull 5.1 billion out of the New Zealand economy last year - four times more profit than the ten largest companies on the New Zealand stock exchange.
The banks are huge money making machines that can well withstand the higher capital ratios the Reserve Bank is proposing without the need to pass any additional costs on to bank customers.
Any moves by the big banks to do so should be met by the Reserve Bank directly creating funds to either support government spending on infrastructure, or re-establish a State Advances Corporation to lend to first home buyers at rates below those offered by the banks.
Banks already have the ability to skim money out of depositors’ accounts should a banking crisis eventuate. The Reserve Bank’s move to make them increase their capital reserves should make such action much less likely.
The banks have had it too good for too long and the move by the Reserve Bank is a breath of fresh air to rein them in.