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RBNZ removes temporary crisis lending facilities for banks (Update 2)

RBNZ removes temporary crisis lending facilities for banks (Update 2)

The Reserve Bank of New Zealand has announced the removal of temporary crisis lending facilities set up for banks during the Global Financial Crisis in October and November last year. (Update 2 with NZ$ reaction) The RBNZ is removing the Term Auction Facility (TAF) that allowed banks to borrow from the RBNZ against securitised mortgages from the beginning of November. It will also shorten its period for lending to banks from monthly to overnight. The New Zealand dollar rose half a US cent on the announcement to just below 74 USc. See live exchange rates here. Here is the full statement below from the RBNZ.

The Reserve Bank announced today that it will be removing and consolidating some of the temporary emergency liquidity facilities put in place during the financial crisis in 2008. The specific measures include: * The removal of the Term Auction Facility (TAF) where banks have been able to borrow funds for 3, 6 and 12 months using eligible collateral (such as Residential Mortgage Backed Securities (RMBS), registered bank bills, NZ Government securities etc). * A change to the regular Tuesday Open Market Operation (OMO) to allow all eligible securities (including corporate securities and RMBS) to be acceptable collateral for repurchase transactions of maturity up to three months. Currently, only approved Corporate and Asset-backed securities are acceptable as collateral in this OMO for terms of up to two months. The regular weekly OMO will continue until the end of March 2010 when it will be reviewed with a view to discontinuing it if market conditions allow. * A shortening of the maximum term over which funds may be borrowed from the Bank in the Overnight/Term Reverse Repo Facility (ORRF/TRRF) from one month to an overnight basis only. All currently approved eligible collateral (including corporate securities and RMBS) will remain acceptable in the ORRF. * The withdrawal of the regular weekly Reserve Bank bill tender. The Bank will continue to offer Reserve Bank bills as required in the daily OMO. The changes announced above will take effect from the beginning of November, with the final TAF and Reserve Bank bill tenders scheduled for the week beginning of 26 October.  See here  details on the Bank's liquidity facilities. Commenting on the measures Reserve Bank Deputy Governor Grant Spencer said: "Financial market conditions have improved significantly since 2008 when these facilities were introduced. New Zealand banks are now able to readily access funding from the markets, and the usage of these special facilities has been very low in the last six months. The Bank feels that the time has come to start removing and consolidating the temporary crisis facilities. "The Reserve Bank will continue to monitor markets closely and is in a position to supply sufficient liquidity as required depending on market conditions via its regular Open Market Operations. "This decision has no implications for the stance of monetary policy."

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