Eight months after appearing at the financial services royal commission, Mr Hartzer said he respected the role and purpose of the sector regulators including ASIC and APRA. But he likened one potential scenario facing the banks – who he said want to lend more but are constrained by a “highly prescriptive” legal and regulatory approach – to a game being spoiled by an overzealous referee.
“It’s not a perfect analogy but in any sport you’ve got to have rules… you’ve got to have boundaries, you’ve got to have a referee, who’s calling fouls,” Mr Hartzer said on Tuesday.
“But you don’t necessarily want the referee to say ‘no, don’t stand there, stand over there’.”
Asked if banks should be acknowledge the role they played in spurring regulators and government into action, Mr Hartzer told an audience in Sydney the blame shouldn’t rest entirely with lenders.
“It’s important to remember the royal commission was focused on cases of misconduct that were largely to do with financial planning,” Mr Hartzer told a Trans-Tasman Business Circle lunch.
“So I think it’s important not to conflate issues around misconduct and management of operational risk … which were significant and we needed to improve on.”
Mr Hartzer said he was willing to admit mistakes and accept consequences, but stood his ground when asked to comment on Westpac’s court battle with ASIC over a breach of responsible lending parameters.
“We absolutely respect the role of the regulator, but if we’re going to court it’s because we disagree,” he said.
Mr Hartzer said the post-royal commission focus on responsible lending has had unintended consequences on the economy, with banks itching to lend but finding it harder to do so.
“The environment, and banks’ responses to today’s highly prescriptive rules creates a real issue for the future,” Mr Hartzer said.
“Given the severe consequences of getting it wrong, it’s not surprising that bankers are building extra buffers into their policies and processes to make sure they stay well clear of the line.”
Moves by the Reserve Bank of New Zealand to increase the amount of capital the country’s banks needed to hold had also “gone further than required”, he said.
“Ironically, by leaning so heavily on the banks it may actually lead to higher credit costs and a much larger and riskier unregulated lending sector, as the banks retreat,” Mr Hartzer said.
In his address – titled ‘Driving growth: We’re all in this together’ – Mr Hartzer called for government, regulators, business and lenders to unite to reignite economic growth.
“Post the election, we’ve seen an increase in business confidence and investment intentions among customers, but it hasn’t yet turned into a significant increase in real investment,” he said.
“And while government spending on infrastructure is helpful, in the long run it’s business investment that creates jobs and generates the salaries and earnings that deliver tax revenue to governments.”