Bank Earnings

OCR Rise Will Add Millions To Bank Profits

Reserve Bank Governor Adrian Orr is expected to start focusing on the needs of New Zealanders rather than how he can deliver more profits to the country’s wealthy commercial bank shareholders.

Today’s increase in the official exchange rate will significantly boost banks’ profits as they raise rates on loans that cost them nothing to create in the first place.

Banks do not lend money that people deposit with them.

They create the digital money they lend out of nothing, like pixie dust.

While it is true that they pay interest to depositors on certain accounts, much of the money on deposit is in accounts that do not pay interest.

And this interest is subsidized by the Reserve Bank which pays the banks interest at the OCR rate on the billions they have in their reserve accounts at the Bank. This balance currently stands at $46 billion.

At the new OCR rate of 2.5%, that means taxpayers will subsidize the banks to the tune of $1.15 billion a year from interest payments on their reserve accounts alone.

This is money that should have been spent on nurses and doctors, getting people out of motels and into homes, putting food on the tables of starving children and making sure the police have resources needed to deal with gang violence.

The increased OCR will hurt beneficiaries, retirees and low earners with a double whammy effect as companies try to recoup their additional interest costs by raising prices.

Rising mortgage payments and rising rents will put real pressure on those who are already struggling to make ends meet and rising costs due to supply chain issues will add even more.

What the bank has done is like adding more fuel to a fire that is already out of control.

On top of that, the Reserve Bank continues to lend banks $12.7 billion in subsidized liquidity through its Lending Funding.
program that helps keep asset prices inflated, keep term deposit rates low and boost bank profits even further, which are already at $20 million a day.

The Reserve Bank should have stemmed the avalanche of money creation that the commercial banks have engaged in – yet it continues to subsidize these loans.

Adrian Orr must explain why his taxpayer-owned Reserve Bank subsidizes the nation’s commercial banks and drives up profits for their mostly foreign shareholders by taking money out of the pockets of Kiwis.

© Scoop Media

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