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16-Aug-2015 21:15:58 by Real Estate Investar
The Reserve Bank is "gutless" for failing to penalise a single rule-breaking bank over the last decade says a banking expert.
Banks have breached their conditions of registration at least nine times over the last five years, with comprehensive records not collected prior to 2009.
Prosecutions can result in fines of up to $1 million, while the worst offenders risk having their licences cancelled.
But figures obtained by the Sunday Star Times under the Official Information Act, reveal the Reserve Bank has not pursued or issued a single bank penalty in the last 10 years.
Massey University banking expert David Tripe said most breaches were in no danger of bringing down the financial system.
However he said the Reserve Bank had been "gutless from time to time".
One of the biggest bugbears was that when banks made reporting errors, they were not compelled to immediately publish the corrected figures, Tripe said.
"The Reserve Bank is very reluctant to change and pursue information deficiencies."
Banks are required to publicly report breaches in their quarterly disclosure statements.
Tripe was critical of the central bank's recent proposal to ease the disclosure rules, which could cut the frequency of statements in half.
"They could be seen as somewhat toothless, and not really willing to confront banks on breaches and make them comply," he said.
Chinese banking behemoth ICBC has managed to blot its copybook twice in the space of six months.
The first breach was for failing to get official clearance before hiring a senior manager, and the second for being over-exposed to its parent company.
ICBC NZ chairman Don Brash, himself a former Reserve Bank governor, agreed the technical breaches were "absolutely not a good look at all".
He and new chief executive Hou Qian had travelled to Wellington to talk with the regulator.
Brash said the central bank was "not happy", but confirmed ICBC had not been penalised.
The relatively new market entrant is far from the only lender to avoid sanctions.
Last year ASB breached its conditions by temporarily overstepping the Reserve Bank's low equity mortgage restrictions.
In 2013, Kiwibank was in breach for several months after the resignation of a board member meant it no longer had enough independent directors.
Reserve Bank spokesman Angus Barclay said the regulator had not pursued court action because "the nature of breaches has been minor and technical".
"We can, and do, use our powers with banks when there are breaches that warrant action from us," he said.
Tripe added that while the Reserve Bank did not publicly criticise lenders, there were probably robust discussions behind close doors.
"Rather than fining ICBC, one would think they'd be on a fairly short watch, and under threat," he said.
The Reserve Bank declined to release the correspondence it had sent to banks in breach, citing confidentiality.
Bankers' Association chief executive Kirk Hope said banks were proactive about noting any potential breach, whether it was big or small.
"You err on the side of caution...'we've identified the issue, we've taken steps to remedy it, here are the steps we've taken'."
Hope said besides financial penalties, the Reserve Bank could order banks to provide further information, or undertake an audit.
He said Reserve Bank governor Graeme Wheeler met regularly with the chairs and independent directors of major banks.
"There are a range of mechanisms, both formal and informal, by which they ensure banks are behaving in way they should be."
Hope said New Zealand's banking sector was well-regarded internationally for its strength and stability.
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