The second phase of the Review into the Reserve Bank Act will explore the option of funding the central bank through new banking levies.
Finance Minister Grant Robertson released the Terms of Reference of the review – which will be carried out by the Reserve Bank and the Treasury – on Thursday afternoon.
Phase two will focus on nine key topics, one of which is the Reserve Bank’s resourcing and funding.
“The Review will consider the funding model for the Reserve Bank, including whether some activities should be funded through industry levies while ensuring an appropriate balance between transparency, accountability and independence,” the Terms and Reference paper says.
In other words, whether entities, such as banks and insurance providers, will be required to pay a levy to help fund the Reserve Bank’s operations will be explored in the review.
It may also have implications for the level of funding the Reserve Bank receives – this may be dealt with in parallel to the Review, the paper says.
Whether or not the Reserve Bank’s macro-prudential toolkit should be bolstered will also come under the microscope.
This is likely to include debt-to-income (DTI) restrictions.
Last week, Reserve Bank Governor Adrian Orr said the Reserve Bank was “positively pursuing” (DTI) restrictions to its macro-prudential toolbox.
IMF Asia and Pacific Division Chief Thomas Helbling has made similar comments.
Robertson has hinted that the review would address some of the concerns the IMF outlined in its Financial Sector Assessment Programme (FSAP) report.
The report paints the picture of a bank regulator that's hands off on a day-to-day basis, recommending Reserve Bank officials conduct more on-site bank visits.
This is acknowledged in the paper.
“The Review will consider the IMF’s FSAP recommendations, whether resolution objectives are appropriate, clarification of the roles and responsibilities of the Minister, the Treasury, the statutory manager, and the Reserve Bank.”
The review will also investigate deposit insurance, as well as exploring the risk that climate change poses to New Zealand’s financial stability.
Other areas the review will investigate include options to work more closely with Australian regulatory agencies to explore, and perhaps improve, the coordination of policy.
The terms of reference also identify a few areas which are out of the scope of the review, including fundamental changes to the New Zealand-Australian home-host relationship and changes to the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.
The review is likely to be completed before the end of the Government’s first term and public consultation with the sector will be a central feature of the review.
5 Comments
Not sure i agree with "deposit insurance". The cost of this will just be passed on to the depositor by the banks either directly or indirectly. What the man on the street really needs is some form of regulation that actually makes banks more accountable for their behaviour, in a way that does not increase the cost of doing business with the banks. In my view this is best served by changing the law to state that depositors fund remain the property of the depositor and the bank must act to ensure they are protected. Currently depositors are unsecured creditors of the bank, which means if the bank gets into trouble, depositors are the very last to get any money back, yet they are the very backbone on which the bank does it's business. If the bank is required to secure those deposits, then they may consider the risk profiles of their business a little differently.
Great way to contradict yourself, Murray.
What the man on the street really needs is some form of regulation that actually makes banks more accountable for their behaviour, in a way that does not increase the cost of doing business with the banks.
And then directly after...
In my view this is best served by changing the law to state that depositors fund remain the property of the depositor and the bank must act to ensure they are protected.
Your statement is essentially:
"I don't want my costs to increase, but I want less risk than I currently maintain."
I don't agree that it is a contradiction Nymad. I believe the banks have gotten so used to be able act with impunity that hey will work to find a way to extort more from their customers if the 'right' (for them) kind of regulation is put in place. What i am saying is that it is Governments responsibility to protect, and therefore act in the best interests of their constituents, and this requires them to essentially be the voice of the people. To allow the banks to get away with the stuff that the Royal Commission has exposed without penalty (or effectively a slap on the wrist) is a betrayal of the people. i suggest that the CBA's agreement to a $700 million penalty is their way of avoiding a much closer and more intrusive scrutiny that would lead to a much worse outcome for them.
As to risk - the interest payments we get from bank deposits are so low there is essentially no risk component in them anyway. Yet Investigations such as the Royal Commission and others which expose exceedingly bad behaviour and a culture of excess suggest that the risk is far higher than the banks would like to have us believe. Just this blog alone has the discussion of an OBR implementation quite often, which again suggests observers, even casual ones see a higher risk than what is covered.
I feel that the banks consider themselves the experts at putting funds to work, one way or another, but have also manipulated governments to enact laws that allows them to avoid the consequences of their own behaviours. Too big to fail is a common phrase here, not to mention 'bank bail outs'. Why should the tax payers be expected to back stop private businesses? Why can't banks be made to be more accountable for depositors funds?
Teehee Murray. The reform you suggest is a very deep one that the incumbent cartel will tell us is a very bad idea. Depositors funds held in trust rather than property of the bank. Radical stuff, but I seem to remember Mervyn King suggesting something along the same lines, perhaps we could ask him to chair the review?
Murray & Nymad both make fair points as the difficulty of recovering trust in Banks should a major default occur resulting in loss of depositors money would be exceedingly difficult making economic recovery lengthy and chaotic with the real possibility of social unrest of an unprecedented scale. Personal accountability with real consequences may be a partial solution and just might change deceptive/immoral practices, a mandatory jail term and loss of all assets including those in trusts or located in foreign jurisdictions and whatever else is required to ensure those responsible for or implicated in such decisions understand that their lives will be ruined by such actions.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.