**7th April 2015 Update** For a copy of APIA’s submission click here.
The Reserve Bank of New Zealand (RBNZ) is a politically independent body charged with overseeing the stability of the country’s financial system. As such, it can set down rules and issue instructions to the trading banks and to other financial institutions.
The Governor of the RBNZ has looked at what happened overseas during the recent financial turmoil, and decided that borrowings by property investors pose a greater risk to financial stability when times get tough than borrowings held by owner-occupiers.
There are estimates that around 30% of new mortgages are going to property investors, but no-one really knows. Therefore the RBNZ is currently working with the trading banks to try and find out exactly how much bank mortgage borrowing is tied up in funding the activities of investors.
So far, several different criteria have been suggested to identify such investor clients, but each one has raised too many complications to be a practicable method. A clear definition is still being sought.
The RBNZ maintains that investor loans are more risky than loans to owner-occupiers. Therefore, in the interests of trading bank stability, banks should hold greater capital to cover these loans and reduce their perceived vulnerability. When banks are able to identify their investor clients as a separate group from their owner-occupier clients, the RBNZ claims that they can then better manage that risk and influence the financial system in order to mitigate any potential crisis.
This is liable to raise the costs within the trading bank system, which would either have to be absorbed by those banks or passed on to their investor customers.
We are told that such an increase in costs, if passed on...
