Reserve Bank Governor Adrian Orr is asking Finance Minister Grant Robertson to “respect the Reserve Bank for its advice”, as the law outlining the central bank’s mandate is reviewed.
Orr, in a speech delivered to the Financial Services Institute of Australasia on Thursday, outlined the changes being made to the way the RBNZ operates as the Reserve Bank Act is revamped.
“Change is now business as usual for the Reserve Bank,” he said.
Orr discussed how the bank wanted to “continue to foster co-operation, transparency and mutual trust among our domestic co-regulators, wider stakeholders and global peers”.
He then mentioned the Finance Minister as a “key stakeholder” of the RBNZ.
“To get the best out of that relationship, we need to continue to understand government priorities and our contribution to the broader economic wellbeing of New Zealanders,” Orr said.
“But we also want the Minister to understand and support our objectives, respect the Reserve Bank for its advice, and hold us to account for our performance.
“Our role is to make sure the Minister has the information he needs to do that. This is also means working closely with the Treasury who will be acting as monitor on the Minister’s behalf.”
Robertson's 'in-principle' decisions
Phase 1 of the Treasury-led Reserve Bank Act review focussed on monetary policy. This saw the RBNZ add an objective to support maximum sustainable employment to its inflation target.
It also saw a new Monetary Policy Committee established to make decisions. This committee has done two Official Cash Rate reviews already.
Phase 2 of the review, which looks at the tools the RBNZ has as banks and insurers’ prudential regulator, is currently underway.
However Robertson, on June 24 - around the same time ANZ NZ was making headlines due to its CEO's expenses and its use of the wrong capital model - announced a number of “in-principle” decisions on Phase 2.
These included:
- introducing a deposit protection regime with a limit of between $30,000 and $50,000
- keeping responsibility for all prudential regulation functions with the Reserve Bank
- combining the separate regulatory regimes for banks and non-bank deposit takers (institutions that are not registered banks, such as finance companies and building societies) into a single ‘licensed deposit taker’ perimeter
- replacing the Reserve Bank’s existing ‘soundness’ and ‘efficiency’ financial policy objectives with a single overarching ‘financial stability’ objective
- establishing a new governance board, which will be given statutory authority over all Reserve Bank decisions (other than those reserved for the Monetary Policy Committee)
- establishing the Treasury as the Reserve Bank’s monitoring agent
The second of three rounds of consultation that make up Phase 2 of the review closes on August 16. Legislation is expected to be brought to Parliament next year.
Getting the capability to be more 'intensive' and 'intrusive'
Orr said in his speech: “Our approach is evolving, becoming more intensive in terms of regulation, and more intrusive in terms of supervision, in order to better monitor the system, enhance its resilience, and manage the consequences of the distress or failure of individual institutions, if and when they occur.”
He said keeping the prudential regulation function within the RBNZ would enable it to “leverage our different tools and market functions and adapt our response as circumstances dictate”.
“We are already increasing our capability to deliver effective prudential supervision, as the IMF FSAP and Trowbridge report on CBL Insurance suggested we should.
“This means more skilled people on the ground. It also means building the right analytical frameworks, taking a more sceptical view, and being more willing to act.”
Orr said building capability and “being a great team” included “sourcing an increasingly diverse workforce, giving staff the skills and tools they need, and building our leadership capability framework”.
He didn’t talk much about deposit insurance, but said: “This will be an important element in the regulatory toolbox.”
As for the RBNZ's changing governance structure, Orr pointed out how a new corporate-type governance board would set the Bank's "strategic direction and risk appetite".
He said the board would increase transparency, accountability and diversity of thought in decision-making.
Being answerable to the Board, Orr said he would “certainly feel the difference”.
The NZ dollar rose by about a half a cent against the US ahead of the speech, where it broadly remained following the speech's delivery.
22 Comments
From an average Joe Public’s perspective I feel that Orr is proving to be a competent and astute Governor. He seems to have very clear goals, and the abilities to clearly articulate these and - most importantly - to implement these. While not necessarily agreeing with all - e.g. I am apprehensive as to the value of deposit insurance - I think he provides a good degree of confidence such as influencing the current economic situation and housing market through balancing OCR and LVR.
key stakeholder?
This man is a public servant, despite the nonsense since 1984. Perhaps he should remember that. Then perhaps he should commission an honest appraisal - publicly available - as to the pending global paradigm-shift. Of course, all the punters would leave the racecourse..... the bookies would go broke...... would we still be paying the salary of the man running the Tote at that point?
Reserve Bank Governor asks Finance Minister for his 'support' and 'respect', as the regulator of banks and insurers takes a more 'intensive' and 'intrusive' approach
Respect is not given by default – it is earned.
RBNZ cut the OCR in half over a four year period to last April without any visible or tangible results that negate the call for further rates cuts in pursuit of inflation related economic growth.
Before you criticise their decision on that move, just think in a counterfactual scenario.. What would have happened if they didn't do that?
They weakened Kiwi 35% and managed to maintain inflation at 2%.. Think about the deflation occuring behind the scenes that they were offsetting.
No visible results, sure, unless you have an eye for it.
There were huge deflationary themes at the time that still persist today.
What you say about interest rates is also not true, that’s inflation you’re describing, not deflation.
You can’t see it because you only look onshore, you don’t think in counterfactuals, and you haven’t spent the time to separate nominal from real prices, and I’m not meaning CPI adjusted when I say real prices.
To say the RBNZ cuts rates in half and it has no inflationary impact because inflation stayed at 2% is like saying it’s not raining because I didn’t get wet when I walked with my umbrella up.
You need to go through the looking glass if you want to get to the heart of all this. I’d just warn you that it’s not pleasant attempting so, but the prize is reasonably rewarding. There are only a few handfuls of people who have done so.
https://ourfiniteworld.com/2019/07/10/why-stimulus-cant-fix-our-energy-…
can someone tell Mr Orr to read that, please?
I quite liked this:
"Conventional economists assume that it is possible for politicians to direct the economy along lines that they prefer, even if doing so contradicts the laws of physics".
Sounds like a whole lot of waffle to me. He’s shown no inclination to shift away from the failed ECB policies, which have destroyed the bond market and are setting us up for a financial crisis that is likely to be unprecedented. Reducing interest rates to zero is their only game plan and in any other period would have been treated as treason. Nothing to respect whatsoever...
To be fair I believe Adrian Orr has earned respect as a prudent & successful financial Manager as head of the "Cullen Fund", compared to the greed & arrogance of the clearing Bank CEO's and the antics & lack of ability of Grant Robertson. Globally (look at Deutsch Bank) the Banking system is heading us to financial Armageddon and their answer looks like a combination of QE and Fiscal stimulus, the latter ending up as a future taxpayer liability so kicking the can further down the road.
Exactly - a peek into our future is called for:
https://www.barrons.com/articles/jim-grant-negative-interest-rates-5155…
https://wolfstreet.com/2019/07/09/negative-yielding-junk-bonds-have-arr…
meanwhile in NZ we just talk and wave wet bus tickets
APRA forces NAB, Westpac, ANZ to hold extra $500m each in capital due to culture, governance concerns
The financial regulator will force NAB, Westpac and ANZ Bank to each hold an extra $500 million in capital due to problems with their governance and culture.
You're right, the end game for this chapter of capitalism is nigh. We're all still dancing round the room & no one has noticed that there's no chairs at all when the music stops. Such is life in the new millennium. Will some one please turn on the lights. PS: I like Orr. He's the only Orr we've got.
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