Barbara Edmonds’ $58 billion banking question

Tuesday, 1 April 2025

Labour finance spokesperson Barbara Edmonds asked the Reserve Bank Te Pūtea Matua whether “pricing controls” could be used to end the “excess” profit banks made on the $58 billion households and businesses held in zero-interest deposit accounts.

And she didn’t get a hard “no” in answer.

At a hearing of Parliament’s banking inquiry on Monday, Edmonds said the Commerce Commission had calculated the five big banks had as much as $58b being held by businesses and households in on-call accounts paying no interest.

“That’s around $11,000 per New Zealander,” she said, which could generate around $3b in “excess” profit for banks.

“Some analysts think that’s quite high, and it could be around $700m, which is still quite significant when you consider the BNZ profit at $1.5b versus the ANZ profit of $2.1b,” she said.

There had been policy initiatives overseas to try to rein in those excess profits, she said.

“One of the sticks that could be used, however, is price controls of transaction accounts,” Edmonds said.

She asked Reserve Bank representatives at the hearing whether the bank had a view about price controls, which she acknowledged would be a “rarity”.

She spoke of requiring banks to pay 1% on currently unremunerated accounts.

Jess Rowe, the Reserve Bank’s prudential policy lead said the price control suggestion was not something the Reserve Bank would express an opinion on.

However, she said bank deposits were a “lucrative” form of funding for banks.

“We have seen other countries look at ways to mobilise that, so people are getting the best deal on their deposits,” she said.

Rowe said in Australia, banks had a legal obligation to tell customers with large amounts in zero-interest accounts when they would be better off holding money in different accounts.

“It’s definitely something we should be looking at,” she said.

Neil Quigley, the Reserve Bank’s chairperson, told Edmonds he had just returned from India, where instant transacting had been introduced.

That had made it much easier for Indians to sweep excess money in transaction accounts into interest-bearing accounts.

“They’ve made a huge step forward,” he said.

Quigley did not expect to see New Zealand catch up in the next two years.

Open banking was a “softer” option for trying to address the problem of unremunerated deposits by making it much easier for people to switch money to accounts that paid interest, Edmonds said.

At an earlier hearing on March 26 under questioning from Edmonds, Westpac chief executive Catherine McGrath said there was a cost to banks to operate transaction accounts.

She said about 85% of deposits at Westpac were in interest-paying accounts.

“If customers are holding more than $5000 in their account we will send them a notification that says, ‘You are holding more money than is good for you in your account. Why don’t you think about putting it into some form of savings?’”

The bank had sent 137,000 of those notifications “in the last short while”, she said.

“The non-remunerated deposits are there for accounts that are transacting a lot. In New Zealand we don’t get charged for any of those,” McGrath said.

There was quite a cost of maintenance for those accounts, which included the cost of fraud and scam protection.

“A small amount of unremunerated deposits is okay,” she said.

She was comfortable the bank was not earning “inappropriate” profits from money people were “inadvertently leaving in the wrong accounts”.