Finance Minister Grant Robertson says a new five-year funding agreement with the Reserve Bank will provide it with an annual average budget of $115 million, up $35 million from this financial year, with staff levels expected to rise 58% to 468.
Robertson says the funding will support greater supervision of banks and other financial institutions following the review of the Reserve Bank Act. He also notes the International Monetary Fund’s 2017 Financial Sector Assessment Programme Review of New Zealand recommended the Reserve Bank substantially increase its financial supervisory capability.
Governor Adrian Orr described the funding increase as "a substantial and important" one, through which the Reserve Bank can "address the critical risks to delivering its mandate, respond to areas of past underinvestment, and establish a long-term model to promote the wellbeing of New Zealand."
"The bulk of this increased spending will focus on expanding and enhancing the Bank’s core activities, particularly investing in financial supervisory and enforcement capability, as recommended by the International Monetary Fund’s 2017 Financial Sector Assessment Programme Review," said Orr.
Below is a statement from Robertson.
Protecting Kiwis with stronger financial supervision
A new five-year funding agreement for the Reserve Bank will mean it can boost its work to protect New Zealanders’ finances, Finance Minister Grant Robertson says.
“New Zealand has a strong and stable financial system. Financial stability is an area that we are not prepared to cut corners for, particularly during the global recession created by the COVID-19 pandemic,” Grant Robertson said.
“This Government is committed to continued investment so New Zealanders can maintain confidence in their banks and financial institutions, through increased supervision and greater enforcement capability to deter and deal with bad behaviour.”
The Reserve Bank funds itself with revenue from its own operations, meaning the funding agreement does not require money from the Government’s Budget. Its five-yearly budget requires agreement between the Finance Minister and the Reserve Bank Governor. The new agreement has been signed by both the Minister and Governor, and will be ratified by Parliament on Tuesday 30 June.
The new agreement provides the Bank with an annual average of $115 million a year for its operations over the next five years, with a further average of $13 million a year for the issuance of currency. The 2019/20 budget total was $80 million.
Grant Robertson said the increase recognises that the number of full time employees at the Bank is expected to increase from 296 in 2018/19 to 468 by 2024/25, and that investment in new technology is required as it takes on new work to keep New Zealanders’ finances safe.
This funding will support greater supervision of banks and other financial institutions following the Government’s work to review and modernise the Reserve Bank Act. The International Monetary Fund’s 2017 Financial Sector Assessment Programme Review also recommended that the Bank substantially increase its financial supervisory capability.
The Bank typically pays a dividend to the Government each year when revenues are greater than its expenses.
“While the new funding agreement will mean the Bank retains more of its revenue before paying a dividend to the Government, this is critical to make sure the Bank can keep New Zealand’s financial system strong and secure,” Grant Robertson said.
Note to editors:
The Reserve Bank is funded through revenues from returns on the Bank’s investments, the issuing of currency, deposits (held by banks and the Crown) and equity (held by Government).
The Reserve Bank does not receive appropriations through the central government budgetary process to cover operating expenses. Instead, the Minister of Finance and the Governor enter into a five-year funding agreement to specify the amount of the Bank’s revenue that is retained to meet net operating expenses each financial year. The Bank’s revenues typically exceed its expenses, with any excess revenue paid back to the Crown through an annual dividend, after allowing for the Bank’s capital requirements.
And here's a statement from the RBNZ.
Reserve Bank welcomes new funding agreement
The Minister of Finance has agreed with the Reserve Bank Governor a new five-year funding agreement which will ensure Te Pūtea Matua (the Reserve Bank of New Zealand) has adequate resources to meet its increasing responsibilities and the expectations of New Zealanders.
“The new funding will enable us to invest in the capability and capacity of our team, and ensure our systems are robust and effective to support our vision of ‘Great Team, Best Central Bank’,” Reserve Bank Governor Adrian Orr said.
Unlike other Government agencies that seek funding through the annual budget process, the Reserve Bank makes money for the Crown through its balance sheet activities. Under the Reserve Bank Act, the Minister of Finance and the Governor enter into a five-year Funding Agreement – an important instrument for maintaining the Bank's operational autonomy, in that it provides multi-year funding and specifies the amount of revenue the Bank may retain to fund its operations.
The new agreement will provide the Bank with an annual average of $115 million a year for its operations over the next five years, with a further average of $13 million a year for the issuance of currency. The 2019/20 budget total was $80 million.
Mr Orr says it is a substantial and important increase, which means the Bank can address the critical risks to delivering its mandate, respond to areas of past underinvestment, and establish a long-term model to promote the wellbeing of New Zealand.
The bulk of this increased spending will focus on expanding and enhancing the Bank’s core activities, particularly investing in financial supervisory and enforcement capability, as recommended by the International Monetary Fund’s 2017 Financial Sector Assessment Programme (FSAP) Review.
Spending will also be directed towards supporting the Bank’s day-to-day operations and investing in the upkeep of its assets. This includes modernising the technology infrastructure and keeping security architecture up to date, designing a suitable vaulting and distribution system for cash, and expanding our reach to stakeholders in Auckland.
Implementing and preparing for changes to our governing legislation is another key priority. The Bank’s future legislation will bring a number of changes to how it operates and significantly enhance the Bank’s policy frameworks and governance settings.
“As we focus on the immediate economic challenges brought about by the impact of COVID-19, it is equally important we look for long-term opportunities presented by the recovery. The funding agreement will enable us to achieve a wide range of initiatives, as part of our commitment to be better kaitiaki (guardians) of our financial system. We are committed to managing our resources effectively and measuring our delivery on the priorities we’ve set,” Mr Orr said.