Reserve Bank favours changes to enhance trans-Tasman banking policy harmonisation

Dr Alan Bollard, Governor of the Reserve Bank of New Zealand, has announced that the Reserve Bank is currently developing strategies and policies to minimise the potential adverse effects of off-shore developments on New Zealand's financial sector.

The recent focus of the Reserve Bank has been on enhancing trans-Tasman policy harmonisation and reassessing bank regulations and supervision policies.

As part of this process, the Reserve Bank has taken another look at its "three pillars approach" (being self-regulation, market discipline and regulatory and supervisory requirements).

The approach is based on the notion that those who have the most to lose from a mismanaged bank ought to bear the greatest risk management burden. Directors, management and creditors are therefore expected to bear the responsibility for outcomes.

In order to reduce New Zealand's exposure to external shocks, the Reserve Bank is now developing local incorporation and outsourcing policies which require that systemically-important banks in New Zealand be incorporated locally and retain the ability to function on a stand-alone basis.

In addition, Dr Bollard has commented that the announcement of the formation of a Joint Trans-Tasman Council on Banking Supervision represents another step towards refining New Zealand's systems for monitoring and coordinating regulatory issues with Australia.

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