Knox warning about changes to banking

Press, 13 November 1985, Page 6

Knox warning about changes to banking

PA Wellington The Government’s deregulation proposals for the banking industry, announced on Monday will affect all New Zealanders, says Mr Jim Knox, president of the Federation of Labour. Mr Knox told the national conference of the Clothing Workers’ Union that until now the banks had “used the profits from the ' services they offer to business (corporate banking) to subsidise a range of personal services to customers, and to offer those services throughout New Zealand.” Those services had become increasingly important to working people since the development of direct crediting of wages and Social Welfare benefits. “As banking is deregulated, overseas banks will be able to rip into the profitable side of banking — the corporate sector. The profitability in that sector will be reduced as a result of competition for the corporate sector dollar, leaving the banks unable to afford the

variety of personal services and a large number of branches,” said Mr Knox.

He said it was hard to understand the Government’s decision on deregulating the banking industry, as it could only make control of the money supply more difficult. The Bankers’ Association said yesterday that statements by the Distribution Workers’ Federation secretary, Mr Rob Campbell, about deregulation were political posturing. Mr Campbell’s assertions that deregulation was the cause of high interest rates were economic nonsense said Mr Max Bradford, the association’s executive director.

“If anything, deregulation in the foreign exchange markets and of the finance sector has led to lower interest rates—lower than they would have otherwise been. The greater competition and higher efficiency resulting from deregulation has done more to lower interest rates than anything

achieved during the years of control to which Mr Campbell wants New Zealand to return,” Mr Bradford said. The most important factors in looking at interest rates were the cost of borrowing by financial institutions, the overheads and profits of those institutions, and the strength of competition for savings. “The largest player in the money market these days is the Government. If Mr Campbell is looking for an explanation as to why interest rates are high, he should look at the Government deficit and the fact that it must be funded from the money market under the Government’s present policies.”

Mr Bradford said interest rates were also influenced by the market’s inflation expectations. In view of the 15 per cent-plus wage settlements brought about by unions in this wage round, it was hardly surprising that interest rates were so high, he said.