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Specious arguments from big banks need to be taken down - Habilis

The Commerce Commission has been urged to come up with an agreed model for how the New Zealand banking sector operates for its banking competition study.

Thursday, October 26th 2023, 10:05AM

by Sally Lindsay

In a cross submission to the market study, Habilis NZ, a wellbeing and social investment consultancy, says the agreed model is needed so there is a common understanding of both the problems and the levers that can be manipulated to create a functioning market in personal banking services.

This will also provide a platform for the refutation of the more outlandish claims of the Australian banks, as it will allow the various hypotheses put forward by their economists and consultants to be tested.

Habilis says as the commission’s Preliminary Issues Paper notes, there is prima facie evidence the Australian banks are making excessive profits, well beyond any reasonably expected return on capital, which means billions of dollars are being siphoned out of the pockets of New Zealanders to provide the undue enrichment of predominantly offshore investors.

“Given the wide-ranging social and economic impacts of this pernicious behaviour and the interplay with the regulatory failures that have led to it, the low-key approach of the commission makes little sense.

“For all intents and purposes, the Commission appears to be taking a technocratic rather than democratic approach. The barriers to finding out about the market study, engaging with the process and providing submission to the commission on the substantive matters have been set very high, and this is a genuine impediment to wider participation,” the consultancy says in its paper. 

“In effect, it is only sophisticated market actors that have the awareness of the issues, the understanding of the complexities and the resources to participate that are being considered stakeholders. The commission appears disinterested in wider inputs from the very consumers who are being disadvantaged by the Australian banks, because it has not designed the process to be inclusive or acted to reduce the barriers to participation.”

Habilis points out while the commission’s Preliminary Issues Paper is a useful document, it is also a technical document; it requires a solid understanding of how banking operates at a structural level, the dynamics of markets and barriers to entry, and of the regulatory frameworks. It does not contain any material that might aid this comprehension for the general public, such as FAQs aimed at non- technical readers.

Further, the intent to exclude consumers from participating in the market study is deeply embedded in the language of the paper itself. “The very consumers whose pockets are being emptied and whose wellbeing is being negatively affected by the Australian banks are referred to exclusively in the third person.

The language of the paper views the 99% of New Zealanders with a personal bank account as a passive group on whom banking market participants act with impunity, the consultancy says. 

“Markets are not theoretical constructs; they are made up of people making decisions about the wellbeing of themselves and their whānau every day; sometimes well, sometimes badly, sometimes under duress, sometimes with incomplete information, sometimes because they have no other choices. All of these people are legitimate stakeholders, not merely a passive group.

And irrespective of the terms of reference of the market study, the commission does not have license to exclude the vast majority of New Zealanders from providing valid input into considerations that will have significant and wide-ranging impacts on their lives. But exclude them it has by providing only two weeks for cross submissions.

For instance, the ANZ economic analysis from Incenta runs to 40 pages; the ASB analysis from NERA and Bell Gully to 20 pages; the Deloitte study from BNZ to nearly 60 pages; and the Westpac response to 18 pages. These are all complex documents containing economic and financial analyses with international context, many of which contain references to other research papers and studies

“As is obvious from the documents provided by the Australian banks, their submissions have been prepared by multi-person teams from some of New Zealand’s leading consultancies and law firms, working for some months. They are by nature complex documents, and it is clear they are intended to promote and support the banks position, rather than to provide neutral commentary. They are advocacy documents, not research papers, and in our view are designed to be inaccurate and misleading.

Habilis says it is apparent from a first analysis of the documents, “the Incenta proposition is wrong- headed on a number of levels, and relies on cherry-picking data based on arbitrary and self-serving criteria to include and exclude different countries, in order to engineer a desired outcome. Incenta’s analysis is not so much a considered assessment of the facts as an attempt to construct a self-licking icecream cone”.

Simple statements from one party provides no basis for high quality public policy development, and attempting to observe the strictures of the scientific method in public debate means participants on both sides of the debate need to provide evidence or at least an alternative hypothesis, rather than flights of fancy, the consultancy says.

“As should be obvious, rebutting Incenta’s more elaborate constructions will require time, effort and expertise. And that time, effort and expertise is multiplied many times over throughout the 150-odd pages of smoke screens and water-muddying analysis from the Australian banks.”

“As noted, refuting some of the more elaborate of the arguments put forward by the Australian banks is a non-trivial task. It requires treating some entirely specious arguments as if they are worthy of a considered assessment, conducting the analysis, and then systematically putting forward the reasons why they are not valid and why the commission should form a different view.

“Given the technocratic approach the commission has adopted in the market study, it is highly necessary to do this work; anecdote will not suffice. And the clear purpose of the submissions by the Australian banks – which have largely thrown the kitchen sink of possible arguments at the Preliminary Issues Paper – is to make the process of refutation as arduous as possible.”

Habilis says the market study increasingly seems like a game played by professionals against us amateurs. The Australian banks far outweigh us in money and resources, and the commission has tilted the playing field towards the technocrats who have the requisite domain knowledge, yet we are being expected to play as if all participants are equal.

It says while it is clear the specious arguments in the submissions from the Australian banks need to be refuted point-by-point, it is not at all clear the commission will be doing the work. Instead, it appears the commission wishes to play the role of a neutral umpire, merely adjudicating the competition between the Australian banks and their detractors.

“Our view is the commission must identify the true state of the current banking sector and the true state of the regulatory framework as part of the same package of work, extending the analysis conducted for the Preliminary Issues Paper.”

Habilis says doing this will require the development of an economic model of the banking sector, covering personal and business banking activities across all participants. This is because the commission is not a neutral party; it is not merely an umpire, sitting on the sidelines of a market that has quite clearly failed, adjudicating the arguments of market participants. Rather, it speaks with the authority and obligations of the Crown.

Tags: banks

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AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 ▼7.45 ▼7.09 ▼6.95
ANZ Blueprint to Build 7.39 - - -
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BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
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Co-operative Bank - Standard 8.40 7.49 7.29 7.15
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First Credit Union Special - 7.45 7.35 -
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Heartland Bank - Reverse Mortgage - - - -
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HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
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Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
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SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
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TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
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Westpac 8.64 ▼7.49 7.35 6.99
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Median 8.64 7.14 6.82 6.65

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