Reserve Bank should not dictate banking outlets

Roger Partridge writes:

A principal who runs a school well does not get to tell parents what to cook for dinner. The authority is real – but it is specific. It does not travel home with the children.

The Reserve Bank of New Zealand seems to have the same problem – mistaking authority in one domain for authority in everything adjacent.

Previously the Reserve Bank seemed to think it was in charge of climate change and the Maori economy. They were so far out of their lane, they would driving through a forest instead of the motorway.

The latest foray into an area where they have dubious authority does at least involve money, which is something they have a legitimate interest in.

The Bank released a consultation paper proposing to require banks to establish over 1,200 new “full-service” cash sites across the country. New Zealanders in urban areas would be no more than a three-kilometre walk from free cash services. Rural residents would face no more than a 15 to 30 kilometre drive. Banks would bear the cost – an estimated $104 million a year, at least in the first instance.

This to me is akin, to NZTA telling petrol companies they must have a petrol station within 30 kms of every house, and they must keep these maintained even if 90% of the vehicle fleet is now electric.

The substance of the proposal is only one issue though. Partridge notes:

The 84-page document does not identify any express statutory power authorising the Bank to mandate where banks provide retail cash services. It relies instead on three propositions: that “one of our functions is ensuring the cash needs of the public are met”; that providing cash services is part of a bank’s “social licence to operate”; and the Bank’s self-described role as “steward of cash.”

None of these is a legal power. The Bank’s central banking function under section 116 of the Reserve Bank Act involves issuing currency, monitoring its distribution, and monitoring the impact of technology on the public’s needs. Those are observational functions – not a power to compel private businesses to establish a national cash distribution network. “Social licence” is a rhetorical concept, not a regulatory authority. And “stewardship of cash” is a title the Bank gave itself.

What the Bank appears to be doing is borrowing the coercive authority it holds as prudential regulator to keep the banking system sound – where it can impose binding requirements on banks under prudential legislation – and deploying it in a domain where no such power exists. 

Prudential regulation guards against systemic risks – the kind that can bring down the banking system.  It does not cover the colour of the bank’s carpets, the hours they keep, where they operate shopfronts or where they place ATMs.

Mandating minimum geographic cash coverage across the country is a service requirement, not a financial stability issue. And no financial stability regulator in any comparable country has used prudential powers for this purpose.

If Parliament wants the Reserve Bank to dictate where ATMs must be, then they should explicitly give that power.

The Reserve Bank itself recognised this just six years ago. In its October 2019 “Future of Cash” consultation, the Bank proposed that new regulation-making powers be added to the Reserve Bank Act. The Bank said these powers were “only intended to be invoked if there is risk of a significant reduction in access to cash across the country.” The envisaged model was that the Reserve Bank would design regulations and recommend them to the Minister of Finance, with parliamentary oversight.

Parliament then had two opportunities to grant those powers – the Reserve Bank Act 2021 and the Deposit Takers Act 2023. It enacted the Bank’s other 2019 proposal (standards for banknote-processing machines), but not the cash access mandate. The current consultation skips over all of this. The Bank is asserting a power that Parliament was asked to legislate and chose not to grant.

If the Bank believes it has the statutory power to compel banks to establish a national cash distribution network regardless, it should say so.

I agree. They should release legal advice that they have the power, if they wish to proceed.

To me it is like the BSA – government entities trying to expand their power by dictate rather than legislation.

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