Opposition sees rise in overseas control

Press, 12 November 1985, Page 3

Opposition sees rise in overseas control

PA Wellington Lifting the restrictions on the number of banks in New Zealand was likely to lead to even more overseas control of the financial sector, said the Opposition spokesman on finance, Mr Bill Birch, yesterday. The Democratic Party leader, Mr Beetham, criticised the Government’s decision. He said overdraft lending in the hands of private institutions was at the heart of the nation’s economic troubles. While National believed that the banking sector should be freed up and made more competitive, Mr Birch said the Government’s move would virtually make the financial sector “open slather.” “The New Zealand interests will be hard-pressed to compete against branches of international banks who have the backing of their parent companies,” he said. “There will be free access to overseas banks, many of whom will simply establish branches here. “The liberalisation is likely to lead therefore to even more control of the financial sector passing overseas,” Mr Birch said. Mr Birch said trained New Zealand staff would be scarce. “The New Zealand financial system is already in a state of flux and this announcement will place even more pressure on the system,” he said. Mr Beetham said the Government would be allowing more financial institutions to engage in primary credit creation (overdraft lending). “Primary credit creation in the hands of private institutions is at the heart of New Zealand’s continuing economic troubles,” he said. “Allowing more institutions to engage in it under only ‘prudential supervision’ from the Reserve Bank will make the situation worse,” he said. Mr Beetham said the primary credit require-

ments should be provided by the Reserve Bank on behalf of the people as a whole. “Other financial institutions should merely have the opportunity to distribute it in return for the right to charge service fees for doing so,” he said.

Speaking about other banking services, Mr Beetham said there was nothing wrong with extended competition although there should be stringent restrictions on foreign banks controlling New Zealand’s financial system. The chairman of the Bankers’ Association, Mr J. B. Macaulay, welcomed the proposal. He said the existing four banks had expected the move for some time and saw it as a logical step in the deregulation of the existing financial system. Whether there would be much more competition or increased efficiency was questionable, he said.

The successive moves to deregulate the financial system since the foreign exchange markets were freed up in September, 1983, had produced one of the most competitive systems in the world, especially in the corporate sector, foreign exchange dealing, and in competition for deposits, he said.

The banks had noted the Government’s reassurances on prudential supervision.

“The banks — and indeed I feel sure all existing financial institutions — would not wish to see a deterioration of prudential standards in New Zealand. For many years, New Zealand banks have been without risk in the eyes of the international market,” he said.

“New Zealanders are conditioned to the word ‘bank’ meaning safety and security in the New Zealand environment. New banks may not all be as strong as existing banks, and depositors will need to be more discerning in future where they place their money,” Mr Macaulay said.