Reserve Bank governor Adrian Orr calls for a more ‘just in case’ approach to resilience

Reserve Bank governor Adrian Orr has voiced concerns over the difficulties people faced paying for goods and services while power, communications and eftpos services were down in flood-affected regions.

Orr indicated he was not happy with the inability of some banks to continue providing services in the wake of the cyclone, saying he had heard “some horrific stories”.

“When people lose the ability to transact, when they don’t have a means of exchange, then social cohesion is very quickly challenged,” he said.

“There’s nothing more distressing than seeing a cafe serving hot coffee beside a bank whose ATM doesn’t work – one had a generator,” he said, appearing to suggest banks should have been better prepared.

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Orr acknowledged his concerns over resilience were not specific to New Zealand or to the banking sector, but described the cyclone as a “horrible wake-up call.”

“We could go on for days about almost every sector of the international economy at the moment, where ‘just in time’ management has been taken to extremes and ‘just in case’ management has been left in the backroom.”

Bankers’ Association chief executive Roger Beaumont said that banks have business continuity plans in place in case of emergencies.

“ATMs need both power and an internet connection to function, which means a generator alone might not be enough to facilitate access to cash in an event like Cyclone Gabrielle,” he said.

Banks had worked closely with the Government, regulators, and other service providers to get banking services up and running again as soon as possible, with an initial focus on secure access to cash, and later getting branches reopened, he also said.

“Banks were also quick to offer customer support including cash payments, reduced loan repayments, waived fees, access to term deposits, and donations to flood relief funds.”

The Reserve Bank has been considering the future of cash over the past few years amid concerns that making cash available is an increasingly marginal financial activity for banks, and has frequently emphasised that cash still has a role in ensuring “financial inclusion”.

Some people only used cash and “all of us use it sometimes”, Orr said.

“This is one of those times when all those people in that region needed to use it,” he said, in an apparent reference to the situation in Hawke’s Bay and Gisborne.

Some of the responsibility for financial inclusion sat with the Reserve Bank and the Financial Markets Authority “but it sits with the banks as well, around their social licence and their customer care”, he said.

Orr stopped short of claiming the floods had vindicated its focus on climate change matters.

He told a conference in Auckland in September that the bank would be increasing the number of conversations it had about climate change over the coming year, saying then that the impacts of climate change were “already here, and those impacts are increasing”.

Former Reserve Bank governor Graeme Wheeler and New Zealand Initiative research fellow Bryce Wilkinson criticised centrals banks for being distracted by “extraneous political objectives” such as climate change in an essay in July.

They also criticised the Reserve Bank’s moves to embrace New Zealand’s indigenous history and culture and “adopt a Māori world view” in the operations of the bank, citing that as an example of central banks taking their eye off their core responsibilities.

Orr said he wouldn’t say the Reserve Bank had been vindicated by the cyclone, but said it was a reminder that climate change was “real”

“We need to both mitigate and adapt to the climate change that’s going on. This work is critical for our monetary policy, financial stability, and even our cash management operations, as you’ve seen.”

Commenting before Orr’s remarks, Infometrics principal economist Brad Olsen said he didn’t see criticism over the bank’s interest in climate change dying down, given it had not yet got inflation under control.

“I’ve never had issues with the Reserve Bank talking about climate goals as long as does its main job, but it hasn’t,” he said, questioning whether it was making a different in that area.

”If they can’t do their primary job on inflation, I’m struggling to see why we would be asking them to save the planet as well,” Olsen said.