The Reserve Bank is anticipating a "significant work programme" over several years to implement the new prudential framework for deposit takers once the Deposit Takers Bill, currently before Parliament, is passed.
The Bill will create a single regulatory regime for all banks and non-bank deposit takers (NBDTs) and also introduces a Depositor Compensation Scheme that will protect up to $100,000 per depositor, per institution in the event of a failure. (There's more detail here on deposit insurance in our Of Interest podcast).
In its Statement of Intent 2022-26 released on Thursday the RBNZ said it would begin "building our capability" for the implementation of the Bill from 2023.
(Separately, the RBNZ also issued a Statement of Performance Intentions, which is a new requirement under the Reserve Bank of New Zealand Act 2021).
"The Depositor Compensation Scheme will be prioritised ahead of the remainder of the Bill coming into effect and is expected to be operational, at a basic level, in 2023-24," the RBNZ said.
"We are also exploring the expected significant resources required to establish and operate a depositor compensation scheme for New Zealand." Here's details on what the scheme will involve.
The Bill was introduced to Parliament on 22 September 2022, and is expected to come into force after receiving Royal Assent in 2023.
"The reforms will provide us with new enforcement tools to help us manage emerging issues, and an enhanced crisis-management framework to respond effectively to any failures and minimise the impacts on the financial system, the economy and society," the RBNZ said.
After the Deposit Takers Bill comes into force, there will be a transition period to allow both the Reserve Bank and regulated entities time to adapt to the new regime.
"A significant work programme over several years will be required to implement the new prudential framework for deposit takers."
The RBNZ says the "parameters" of the deposit insurance scheme may evolve during the parliamentary process and will also be shaped by regulations that will clarify important aspects such as the scope of protected deposits.
"During the passage of the Bill we will continue to consult our stakeholders on the implementation of the scheme, including the design of the regulations, how the levies to fund the Scheme should be applied and how the Scheme will operate in practice."
In discussing the role that monetary policy plays, the RBNZ says it "contributes to public welfare by reducing cyclical variations in employment and economic activity while maintaining price stability over the medium term. We use monetary policy to create the conditions to promote full employment and maintain the purchasing power of money into the future".
"We recognise the importance of understanding the effectiveness of monetary policy and the channels through which our policy actions affect the economy. Ongoing research in this area ensures our actions are targeted and contribute to economic wellbeing over time."
The RBNZ said the Covid-19 pandemic has affected the New Zealand economy "in unexpected ways", and this now calls for a renewed research focus on the best way to achieve economic objectives in a changed world.
"Supply constraints have altered inflation dynamics in the economy.
"Similarly, labour market behaviours have changed as workers and employers have adjusted to the effects of the pandemic. As a result, both inflation and maximum sustainable employment must now be understood in a new light.
"We are further developing our tools for estimating the impacts of additional monetary policy tools on our policy objectives, and the secondary impacts of these on income and wealth distribution and our balance sheet. We will publish this research in stages over the next 18 months."
On macroprudential policy, the RBNZ says this is used "to reduce the risk that the financial system will amplify a severe downturn in the real economy".
"Unsustainable booms in credit and asset prices can result in unfavourable situations that can create losses for banks, businesses and households, which can reduce the ability of banks to continue lending during a downturn.
"The main macroprudential tool applied to date is loan-to-value restrictions on residential mortgage lending. Following our recent consultation, we are now proceeding to design a framework for debt-to-income restrictions on mortgage lending as an additional macroprudential tool.
"We intend to have the framework finalised by late 2022, so that restrictions can be introduced by mid-2023 if required. Over the next 12 months, we will also undertake a review of our long-term framework for macroprudential policy, including a consideration of our decision-making process when making adjustments to macroprudential policy settings."
The Statement of Intent also included (page 40-41) the below summary of key activities:
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