The top brass at the country’s banks, as well as their regulators, are due to be publicly questioned by politicians about the level of competition in the banking sector.

Finance Minister Nicola Willis has asked Parliament’s Finance and Expenditure Committee to lead an inquiry into competition in the banking sector.

The inquiry will draw on the draft findings of the Commerce Commission’s big market study into retail banking, which is due for completion by August 20.

But it will go further - also covering business and rural banking.

Willis has asked the Primary Production Committee to work with the Finance and Expenditure Committee on the inquiry, including on writing a terms of reference.

National and NZ First agreed to the establishment of the inquiry in their coalition agreement.

Willis said the inquiry should look at “barriers preventing further competition in the sector” and “any possible impact of the regulatory environment on competition and efficient access to lending”.

“That could include seeking evidence during the inquiry from financial market regulators including the Reserve Bank, Commerce Commission and Financial Markets Authority,” Willis said.

“I would also expect that the inquiry would, as a matter of course, expect to hear submissions from those banks operating in New Zealand, with chairpersons and chief executives being made available for questioning.”

The Commerce Commission took aim at the Reserve Bank in its draft report, arguing the amount of capital the Reserve Bank requires banks to hold to keep them safe is stymying competition between the big and small banks.

Many in the business and agricultural sectors have also had the capital rules in their sights, arguing they’ve enabled banks to become more risk-averse - to write more mortgages at the expense of business or agricultural loans, because they don’t need to hold as much capital for stock standard mortgages.

Nonetheless, the Reserve Bank hasn’t had a bar of the pushback, saying it isn’t changing the rules, which are still being phased in, as they’re necessary to keep the financial system stable.

It’s also made the case the banks can afford to strengthen themselves.

The debate over the capital rules got heated ahead of the Reserve Bank deciding on them in 2019.

Elements of that battle have surfaced in recent months, with Reserve Bank governor Adrian Orr personally hitting back at big business-funded think tank The New Zealand Initiative, as well as a bank chief executive, for criticising the rules.

The Reserve Bank believes the Commerce Commission’s draft recommendation for open banking to be sped up is key to improving competition in the sector.

Open banking sees banks share customers’ data with third parties (should customers request this) to enable them to carry out bank-related functions, like payment processing or budgeting/money management.

While open banking is occurring overseas, and slowly happening in New Zealand, banks here have been dragging their heels in this space for several years.

Willis concluded, “A more competitive economy is a more productive economy - with more growth, innovation, and investment.”

Jenée Tibshraeny is the Herald’s Wellington business editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.