The Reserve Bank’s approach to the regulatory side of its job has been criticised in the past, notably by the IMF, but what does the Finance Minister think?

Finance Minister Grant Robertson says the Reserve Bank’s approach to regulation has been a “light touch model” but won’t yet say if he expects much to change in this area.

He is instead waiting for the outcome of the second phases of the Reserve Bank Act review, which will be completed later this year.

The Reserve Bank’s idiosyncratic, light touch regulation of New Zealand's banks has come under the spotlight, notably from the International Monetary Fund (IMF). Last year an IMF report into New Zealand’s financial sector judged the Reserve Bank to be "materially non-compliant" in 13 of 29 international bank regulatory and supervision framework standards.

The IMF noted the Reserve Bank does not conduct inspections or on-site visits of New Zealand’s banks.

“Overall, the lack of first-hand independent verification of prudential returns and assessment of banks’ risk management practices prevents the Reserve Bank from having a thorough understanding of the banks,” the IMF said.

Robertson told interest.co.nz he is aware of what has been said.

“Clearly it has been a light touch model and the Reserve Bank itself acknowledges that’s what it does.”

In December 2016, then Reserve Bank Deputy Governor and Head of Financial Stability Grant Spencer told interest.co.nz New Zealand would get “the expected result of not ticking a lot of the boxes” in the IMF review.

Robertson says there are “alternative views” and these have to be explored and tested through the current review process.

“I think everyone recognises that with our Reserve Bank, we have a body that deals with core monetary policy but it has roles around regulation and financial stability that, in other jurisdictions like in Australia, are separated out.”

“That means we need to look at the bank and make sure that it is fit for purpose to be able to do the job and the rules and regulations are the ones that suit our economy.”

Meanwhile, Robertson has revealed the new Policy Targets Agreement (PTA) is not likely to be released before the end of this week.

A new PTA is introduced when a new Governor takes over at the Reserve Bank. Former NZ Superannuation Fund chief executive Adrian Orr takes the helm of the central bank next Tuesday.

This means the PTA has to be signed before then.

Although he is “very close” to having the agreement ready, Robertson says he does not think it will be unveiled before the end of the week.

“We’re working through that process at the moment and it will be done before the deadline, it’s just a matter of logistics in making that happen.”

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3 Comments

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