The union’s position is pretty simple. At a time when banks are making combined profits in excess of $2.5 billion and CEOs recieve salary packages of more than $2 million each, there’s no excuse for banks to continue to cut jobs and offshore work while receiving taxpayer assistance.The thing to note would be that the answer to Tane problem isn't to make job protection a condition of bank guarantees. The answer is to do away with the guarantees themselves. That way Tane would not need to worry about guarantees of job protection. As Roderick M Carr, former deputy governor of the Reserve Bank of New Zealand, and current VC of UC, put it,
And New Zealanders agree. A UMR poll released today shows 79% of Kiwis want job protection to become a condition of bank guarantees. No surprise really when you consider that already this year close to 1000 jobs have been offshored.
Once the state is exposed to the underwriting risk and moral hazard of a deposit insurance scheme (implicit or explicit), it must monitor the banks to reduce the probability of failure. With an implicit guarantee or explicit deposit insurance scheme in place and the regulator deeply implicated with any bank failure, markets assess the probability of loss given default to be lower than otherwise, making them more willing to take risks with banks. This reduced risk aversion translates into holdings of lower levels of bank capital than would otherwise be required to underpin a portfolio of risky loans.As to arguments against deposit insurance (whether explicit or implicit) Carr goes on to say,
Depositors and banks take more risk (incur moral hazard). Banks make more risky loans, which crowd out safe loans. Small scale and inefficient banks are protected. Regulatory capture and regulatory forbearance increase the loss given default. Credible deposit insurance may reduce the probability of bank runs as a cause of bank failure and increase the political acceptability of failing insolvent banks, but it does so at the risk of increasing the probability of failure, risks increasing losses given failure and appears to increase fragmentation and inefficiency in the intermediation process. Increased competition may be associated with more participants and industry profitability may be reduced. However, it is more likely that profits are reduced because costs are higher than because fees and margins are lower. A less profitable banking industry may simply reflect a less efficient one.So the bank guarantees are the problem, not the answer, and thus Tane should not argue for "job protection" but for the removal of all taxpayer support, corporate welfare, for banks.