Reserve Bank proposals to make banks hold more capital to guard against a financial crisis will slow economic growth, lift interest rates, and disadvantage smaller New Zealand owned banks.
New Zealand's four big banks. Photo: RNZ
That's the thrust of submissions to the Reserve Bank from several of the banks on the plan which have been released today.
Westpac said the proposed capital requirements were excessive and would have a number of unintended consequences.
"The cost of proposals, and the impact on the economy, have been significantly underestimated," it said.
"Westpac considers that the proposals are likely to have a significant negative impact on the economy (an annual drag of approximately 1.3 percent of GDP) as a result of higher borrowing costs and restrained lending capacity resulting from credit rationing."
It said the proposals could add a whole percentage point to the annual cost of a mortgage.
"The cumulative imposition of such high levels of regulatory capital on New Zealand banks will increase the cost to borrowers... which would equate to an increase of approximately $6,000 to the annual borrowing cost for an average home loan in Auckland."
The bank said the changes could also drive consumers away from strong, safe banking.
"The inevitable and undesirable consequence will be to drive activity away from the regulated sector towards offshore and alternative sources of finance. Further compounding the issue is the proposal to restrict certain capital instruments from qualifying as capital."
Small NZ banks disadvantaged
New Zealand-owned banks - Kiwibank, SBS, TSB, The Co-operative Bank - have said the RBNZ's proposals will disadvantage them.
"We have concerns that proposed changes will widen rather than reduce the competitive gap between large and small banks," they said in a joint submission.
They said they did not have large Australian parents to fund them and the RBNZ needed to allow them to hold a wider range of assets to bolster their capital. They also wanted any decisions phased in over eight years rather than the proposed five.
Meanwhile, former finance minister and prime minister, Bill English, has told a finance conference in Sydney that talk the big Australian banks will restrict investment in New Zealand is a bluff.
"Australian shareholders and Australian banks do very well out of New Zealand. They generate good returns. I think they will stick around," he said.
The big four Australian banks all had better performance, earnings, and lower bad debts in New Zealand than Australia.
"You make a choice - you either put up with a system and put your capital at risk, or you take it away. So far, for all the bluster over the last 15 years, no Australian bank has taken its capital away. What does that tell me? What should it tell you? Don't believe what they say - watch what they do," Mr English said.