Over-regulation of banks by RBNZ could be costing $14.4b a year

Andrew Body says there’s an “accountability deficit” in the Reserve Bank’s prudential regulation. Source: Andrew Body

How much is over-regulation by the Reserve Bank costing the New Zealand economy?

In another supplementary submission to parliament’s finance and expenditure committee’s (FEC) banking inquiry, consultants Andrew Body and Simon Jensen have suggested we should look wider than just the cost of RBNZ’s bank capital rules, arbitrarily though they were arrived at.

They’ve come up with a figure between $10.1 billion and $14.4 billion a year, equating to between 2.42% and 4.46%, assuming the economy’s current value is $419 billion a year.

That compares with RBNZ’s own estimate of about $876 million a year cost (rebasing its estimate to the same $419 billion value of GDP) of its capital rules compared with the previous rules, or somewhere between 20 basis points and 40bps.

It seems safe to believe that RBNZ underestimated the impact of it requiring banks to nearly double the amount of capital they hold by June 30, 2028, a process we’re about half way through.

Because just about everybody else who has looked at this has come up with a greater impact.