In defence of Reserve Bank governor Adrian Orr

In defence of Reserve Bank governor Adrian Orr

Sam Stubbs is chief executive of KiwiSaver fund Simplicity and a regular opinion contributor.

OPINION: Given the recent berating of Reserve Bank governor Adrian Orr for overstimulating the economy during Covid, leading to raging house prices, it is worth considering whether the criticisms have merit.

And, objectively, has he actually done a poor job or a good one?

The criticism of his leadership focuses on three main areas.

The first is his mishandling of the Covid response – too much money printed, leading to unnecessary inflation.

* Reserve Bank ‘blaming the public’ for buying pricey houses, economists say
* Orr says Reserve Bank getting towards point where next rate move not obvious
* Were people stupid to buy a home in the last two years?

This criticism is easy to make in hindsight. But can anyone name a central bank anywhere in the world that made all the right decisions during Covid, with inflation now under control?

And looking at how well our economy actually performed during the Covid crisis, it’s a tough judgement to say the Reserve Bank mishandled it.

Initial Reserve Bank stimulus – via the large-scale asset and funding for lending programmes – provided more than $120 billion of liquidity. This helped both stabilise the economy and get us back to economic growth within a year of Covid happening.

These were brave calls, big calls, blunt calls, and, overall, the right calls.


Reserve Bank Governor Adrian Orr speaks with Stuff a day after raising the OCR.

In hindsight, the stimulus has been criticised for being overly large and inflationary. But relative to our economic output, it was in the middle of the pack versus other developed economies.

And yes, inflation has now popped out of the mandated target zone. But it has on four other occasions since 1989 as well. Many other Reserve Bank Governors have failed this test before bringing inflation under control.

And Orr is helping steer an economy that received large fiscal stimulus during Covid too, totalling up to $62b through to FY 2024. He had no control over that. And much of that found its way into the housing market, as it has in almost all developed economies.

Expecting perfect Reserve Bank policy responses during the chaos that was Covid is like expecting a doctor to perform surgery with an axe, in a hurricane.

Columnist Sam Stubbs is chief executive of KiwiSaver fund Simplicity.


Columnist Sam Stubbs is chief executive of KiwiSaver fund Simplicity.

The second criticism (usually said in hushed tones) is that Orr has over-woked the Bank.

Reserve Bank Governors, like the bank itself, are typically shrinking violets. But Orr, a colourful character, has re-branded the Reserve Bank using the legend of Tane Mahuta, with language and metaphors that sit uncomfortably with some traditional Reserve Bank watchers.

But is it really any different than the narrative all government departments now use? It’s a sign of the times, not of the Reserve Bank leadership. And, actually, it’s true. The bank is kaitiaki of our financial system.

The third criticism is he has been too tough on the big banks. Unsurprisingly, this criticism comes primarily from the very banks that are being regulated. It feels to me like some bankers have started a whispering campaign to remove him.

So why are the big banks so angry at him?

A big reason is that to ensure the ultimate safety of the banking system, the Reserve Bank has required banks to set aside more capital to support their activities.

And he has insisted that they be able to operate independently from their Australian parents within our borders.

Neither of these requests is unusual in a global context, and only seems tough relative to the easy ride the banks have had before him.

For too long, the Reserve Bank and the big banks have been too close. The best example of this was the farcical situation of banks effectively setting and managing their own regulatory capital, which is supposed to protect depositors.

This was a fundamental conflict of interest between increasing their profits and protecting depositors. It’s like letting a child manage the lolly jar.

It was certainly not global best practice, or even close to it.

Sam Stubbs: Looking at how well our economy actually performed during the Covid crisis, it’s a tough judgement to say the Reserve Bank mishandled it.


Sam Stubbs: Looking at how well our economy actually performed during the Covid crisis, it’s a tough judgement to say the Reserve Bank mishandled it.

Under Orr’s leadership, the Reserve Bank investigated how well this self-management was performed, found and exposed examples of poor practice, and took away privileges that the banks should never have had in the first place. Banks now need to put aside a sensible level of capital, set by the Reserve Bank alone, to protect depositors.

And the Reserve Bank is now insisting on New Zealand subsidiaries operating independently from their Australian parents, just in case they pull the trans-Tasman plug in Sydney or Melbourne. This should have always been the case.

None of this has made him top of the pops with big bank management. Nor should he be. His job is to regulate the banks, not befriend them.

So, contrary to big bank criticisms, Orr is to be applauded for putting the hand brake on an all too cosy historical relationship between the Reserve Bank and the banks it regulates.

And despite the howling, wailing and gnashing of teeth from the banks about how their profits would be hurt by these changes, they are back making super profits again.

Reserve Bank of New Zealand

Reserve Bank governor Adrian Orr talks about the bank’s prediction that house prices could fall 20% from their peak.

But as critical as the big bankers are of Orr, they should actually be thankful. It could have been much worse.

Firstly, the Aussie-owned banks in New Zealand have escaped the full inquiry that their parent banks had in Australia. Banks in Australia were given a hospital pass by their regulator, but ours got a free pass.

Technically this is not the Reserve Bank’s job. It is the politician’s responsibility to launch a proper banking inquiry. But the Reserve Bank seemed distinctly unenthusiastic about it, for reasons we will probably never know.

And there has been poor progress in getting open banking in New Zealand, costing ordinary Kiwi depositors and borrowers millions a day in excess charges and interest rates.

Orr has made the odd clanger too. By continuing with the funding for lending (FLP) programme, the big banks are still being supplied billions in free money from the Reserve Bank. The banks then lend this out to make even higher profits. Sadly, the banks are addicts for free money, and the Reserve Bank is now their dealer.

Some are calling for Orr to be replaced. But to my mind, those calls are simply because he made the tough decisions that were required during Covid.

He has modernised the role, image and best practices of the Reserve Bank, and ensured the banking system remains safe. Many of these decisions should have been made by previous Reserve Bank Governors. Thankfully, he has.

And while his record isn’t perfect, whose is?

And judging by how much Orr seems to be disliked by the big banks, he must have done a good job of doing what he’s paid to do – protecting the interests of ordinary Kiwis’ depositors.


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