Complaint under section 8(1B)(b)(i) of the Broadcasting Act 1989
One News – item explained where bank loans come from – allegedly inaccurate
Standard 5 (accuracy) – item gave accurate description of how bank loans are created – not upheld
This headnote does not form part of the decision.
 An item on One News, broadcast on TV One at 6pm on 20 October 2008, was introduced as follows:
The global credit crunch is forcing more governments to prop up their banks and guarantee borrowing. So what does that mean for New Zealanders trying to get a loan?
In tonight’s special report we send Garth Bray to find out where the money you borrow comes from.
 Reporting from a kitchen, Mr Bray offered the following explanation:
Think of a bank loan like baking a cake. You see banks used to get most of the money from depositors, but that’s a very old-fashioned way to whip up a loan. Say you're after $300,000 for a new home from one of the Big Four banks, the bank will get half that money, roughly, from Kiwi depositors, and a little bit – about eight-and-a-half thousand dollars – from capital, the bank's shareholders. And the rest they’ll get from the wholesale money market, two-thirds of it offshore, and typically very short-term.
 Dawn Lorimer, an Applied Finances expert from Victoria University, was shown saying that, "Some of the funding that’s obtained offshore in the form of commercial paper would be about 7 days, 30 days, and shorter". The reporter went on to say that:
For years we relied on a steady fresh supply of wholesale borrowing. In the midst of this credit crunch, countries are maintaining that flow by guaranteeing their banks’ borrowing. But not here, so what does that mean for you trying to borrow that $300,000?
 Ms Lorimer commented that, "About 142,000 all up is not covered currently by the guarantee that the government has put in place for local depositors".
 John G Rawson made a formal complaint to Television New Zealand Ltd, the broadcaster, alleging that the item was "grossly misleading".
 First, Mr Rawson argued, banks in New Zealand can only lend New Zealand dollars, not money from overseas. Such money could either become part of the banks' reserves, or could be used by others for purchases overseas, while they created the equivalent amount according to the particular exchange ratio in New Zealand.
 Secondly, the complainant maintained that banks never "lend the money deposited with them" as stated in the item. Such money is paid into customers’ accounts where, as deposits, it is part of the money supply and these individual deposits are never reduced by bank lending. The only way the item could be correct, he said, was if the money doubled as it was paid into the bank.
 TVNZ assessed the complaint under Standard 5 of the Free-to-Air Television Code of Broadcasting Practice, which provides:
Standard 5 Accuracy
News, current affairs and other factual programmes must be truthful and accurate on points of fact, and be impartial and objective at all times
 TVNZ disagreed with the complainant that the item contained any deliberate "misinformation" in breach of Standard 5. It said that it had been back to the source of the information to verify the accuracy of comments made in the item. Ms Lorimer confirmed that her comments were accurate and explained that the widely held understanding is that today’s banks must account for their liabilities, that is, the money lent to them by depositors. She said banks must also account for their assets, in the form of money owed to them, that is, by home loan borrowers. Banks therefore seek to make a profit on the margin between those two totals.
 TVNZ maintained the item was not suggesting that New Zealand banks lend foreign currency to consumers. The item stated that New Zealand banks used wholesale commercial paper money on a short-term basis.
 Further, the reporter for the item was confident that the item did not contain any inaccuracies and said that "the account of banking supplied by our source would meet agreement from any orthodox analyst, academic or high school economics teacher".
 Having checked the validity of the facts in the item, TVNZ concluded that the item was not inaccurate and declined to uphold the Standard 5 complaint.
 Dissatisfied with TVNZ’s response, Mr Rawson referred his complaint to the Authority under section 8(1B)(b)(i) of the Broadcasting Act 1989.
 The complainant reiterated that "banks cannot lend 'money deposited with them', which has passed into customers' deposit accounts and which sums are the banks’ liabilities, not assets".
 Mr Rawson also maintained that banks need capital and money from the wholesale money market for interbank transactions and reserves against sudden increased withdrawals, but they do not lend this money. All money that they lend is created when each loan is made, he said. He attached a letter from the Reserve Bank in support. He said the system is known as "fractional reserve banking", where loans exceed reserves by five times or more.
 The complainant said that the same applied to money from overseas, which in any case could only be used for overseas transactions. He said that "while we are running a deficit, the main flow is out, not in". He attached a Monetary Commission Report relating to money from overseas and noted that it referred to customers' transfers, not bank lending.
 Mr Rawson concluded that "not one part of their explanation was strictly correct". He considered the item would have been "tolerable" if it had pointed out that loans are new money created by the banking system, but with safeguards. Had it also pointed out that banks working here are sounder than those in the USA because they do little or no lending without taking sufficient assets to cover their loans, the programme would have served to achieve its aim of increasing public confidence in the system, Mr Rawson said.
 The complainant noted that TVNZ had not taken any steps to verify its information other than by going back to "its original (faulty) source". He attached material from various sources, contending that TVNZ would have realised its errors if it had consulted school texts or the Reserve Bank.
 TVNZ noted that before lodging a formal complaint, Mr Rawson had asked TVNZ a number of questions about the item in a letter dated 23 October 2008. TVNZ researched those questions and sent him a response on 17 November 2008. Dissatisfied with that reply, Mr Rawson had then lodged a formal complaint.
 TVNZ maintained that the item did not contain any errors of fact. It said that after answering Mr Rawson’s initial questions and then receiving the subsequent formal complaint, its News and Current Affairs department went back to its source to confirm the accuracy of the information broadcast, and TVNZ was satisfied with the veracity of that information.
 The Authority requested some assistance from a senior economic analyst at the Reserve Bank of New Zealand in order to determine the accuracy of the statements made in the item.
 Having considered the statements in the broadcast and the arguments from both parties, the analyst concluded that:
...most reasonable finance professionals would not see the TVNZ statement as materially inaccurate or misleading. It is a reasonable explanation of how the average loan by one of the four big New Zealand banks is funded.
 The Authority asked for further detail or reasoning as to why the analyst had concluded that the statements in the item were not inaccurate. He replied that both of the complainant’s objections were incorrect.
 With regard to the first of Mr Rawson’s objections, the analyst noted that "An update on Eurokiwi and Uridashi bonds"1 outlined how New Zealand banks obtained offshore funding which they lend to households and firms in New Zealand. The article described a process by which New Zealand banks are able to raise foreign currency on world markets and then swap the foreign currency for New Zealand dollars which they then use to make loans, he said. However, there was no requirement for banks to do so. In fact, the analyst said, New Zealanders take out a foreign currency loan from their bank each time they use a credit card overseas.
 Looking at Mr Rawson’s second point, and referring to section three of "The Reserve Bank: Private sector banks and the creation of money and credit",2 the analyst said that banks can and do lend out money deposited with them. That section described how banks effectively create money, he said, by lending on a portion of the funds deposited with them.
 Mr Rawson noted that the analyst had countered his contention that banks create money when they lend it by stating "banks effectively create money". He also pointed out the finding that banks "increase the money supply" when converting overseas loans to our currency. The reverse action decreases it, he said, so the "swapping" referred to actually involved creation and cancellation of money "if you take the pure approach". In fact, Mr Rawson argued, the overseas funds can only be used for transactions overseas, while New Zealand money was created and cancelled by the banking system here. He again referred the Authority to the letter he provided from the Reserve Bank "clearly stating that, apart from notes and coins, our money is ‘created by (our) banking system'".
 The members of the Authority have viewed a recording of the broadcast complained about and have read the correspondence listed in the Appendix. The Authority determines the complaint without a formal hearing.
 Standard 5 (accuracy) requires that news, current affairs and factual programmes are truthful and accurate on points on fact. Mr Rawson argued that the item was inaccurate because New Zealand banks do not loan overseas money, and do not loan money deposited with them.
 On the first point, the Authority considers that the complainant has interpreted the statement made in the item in an overly literal manner. Reasonable viewers would not likely have taken from the item a suggestion that New Zealand banks lend overseas currencies. Taking into account the response from a senior economic analyst at the Reserve Bank, the Authority finds that the item used acceptable shorthand to describe how New Zealand banks obtain offshore funding which is then used to partially finance loans.
 Secondly, the Authority is of the view that, based on the Reserve Bank analyst’s explanation that "banks can and do lend out money deposited with them", the statement in the item that "the bank will get half that money [for the loan], roughly, from Kiwi depositors" was not inaccurate or misleading. The Authority considers that the process of funding bank loans was acceptably simplified in the item so that it was comprehensible to the ordinary viewer.
 Having found that the statements in the item were not inaccurate, the Authority declines to uphold the complaint that the item breached Standard 5.
For the above reasons the Authority declines to uphold the complaint.
Signed for and on behalf of the Authority
6 May 2009
The following correspondence was received and considered by the Authority when it determined this complaint:
1. Letter from John G Rawson to TVNZ – 20 October 2008
2. Response from TVNZ – 17 November 2008
3. Mr Rawson’s formal complaint – 17 November 2008
4. Letter from Mr Rawson to TVNZ – 19 November 2008
5. TVNZ's response to the complaint – 16 December 2008
6. Mr Rawson’s referral to the Authority – 7 January 2009
7. TVNZ's response to the Authority – 5 February 2009
8. Response to Authority’s request for further information – 6 March 2009
9. Second response to Authority's request for further information – 25 March 2009
10. Complainant’s final comment – 30 March 2009
1RBNZ Bulletin, Vol. 68, No. 3
2RBNZ Bulletin, Vol. 71, No. 1, March 2008