Review Of Costly Capital Rules Long Overdue

Federated Farmers welcomes today’s announcement that the Reserve Bank will be reviewing its capital requirements, which have been costing farmers a fortune.

"The current rules are overly conservative and among the strictest in the world," Federated Farmers banking spokesperson Richard McIntyre says.

"That’s why Federated Farmers have been so vocal on this issue and leading the charge in calling for the Reserve Bank to make significant changes.

"Overly strict banking rules have done nothing but unnecessarily drive up the cost of rural lending and restrict our access to capital. To put it bluntly, they’ve been bleeding us dry.

"We’re pleased the Reserve Bank has finally seen the light and taken the first steps towards easing some of the pressure farmers have been feeling by announcing this review."

McIntyre says he hopes the Reserve Bank will move quickly in carrying out the review and will put in place a system that is less conservative and more supportive of economic growth.

The current rules - requiring banks to hold enough capital to withstand a one-in-200-year financial event - are costing farmers a fortune, he says.

"We’re talking about $600 million of unnecessary extra interest payments each year in terms of the total cost to farmers.

"That’s $44,000 of extra interest payments for your average Federated Farmers member that comes straight off their bottom line.

"It’s an eye-watering sum of money being drained from our rural communities that could have otherwise been used to grow our agricultural sector."

McIntyre says the Reserve Bank must wake up to the damage its policies are doing to farmers, rural communities and the wider economy.

"Under these rules, we’ve seen the cost of borrowing soar, and it’s become harder for farmers to get loans when they need them."

If there are savings to be made from reducing capital requirements, those savings must reach farmers directly, he says.

"Any savings that result from an easing of the capital rules cannot go into padding out bank profits - we’ll be keeping an eye on that closely.

"This review should also encourage a closer look at bank behaviour. We need transparency to ensure farmers are getting a fair deal.

"Today’s announcement is a positive step in the right direction, but we need this review to result in an easing of the rules - and fast."

© Scoop Media