Central banks emerged from being the strongest financial institution acting as the banker to the government and to the banks, and as lender of last resort. This position at the heart of the financial system made central banks the natural institution to also take a public policy role, with responsibility for the stability of the financial system, Ms Beaumont says in a speech delivered to the 39th Annual Conference of the Banking & Financial Services Law Association.
In New Zealand the first formal responsibility for prudential regulation and supervision of banks was provided for in the Reserve Bank of New Zealand Amendment Act 1986. The Reserve Bank of New Zealand Act 1989 carried over this responsibility, with the purpose of 'promoting the maintenance of a sound and efficient financial system'.
Reflecting the significant changes to the global and New Zealand economy since 1989, the Government launched a review of the 1989 Act in 2017, with a goal of modernising New Zealand's monetary and financial policy frameworks and the Reserve Bank's governance and accountability settings.
The Reserve Bank of New Zealand Act 2021 contains the first key outcome of the financial policy work which reframed and clarified the financial policy objective to: 'protecting and promoting the stability of New Zealand's financial system'.
"This change provided us with a clearer and more focussed prudential mandate," Ms Beaumont says.
The second part of the financial policy work led to the Deposit Takers Act (DTA), which was passed into law in July. The DTA introduced three significant changes to New Zealand's prudential settings:
- The introduction of the Depositor Compensation Scheme (DCS);
- The integration of separate prudential regimes for the licensing of deposit takers; and
- The strengthening of New Zealand's deposit taker crisis management framework.
The DTA also provides more colour on what financial stability means for the deposit taking sector through the inclusion of additional purposes which cover soundness, public confidence, mitigation and management of risks to and from the financial system, and accessibility to financial products and services. In addition, factors such as efficiency, proportionality and supporting the diversity of the deposit taking sector feature in the decision making principles that the Reserve Bank must consider in achieving purposes of the DTA.
These changes represent a profound paradigm shift in the approach to regulating and supervising entities and bring New Zealand's framework closer to international orthodoxy, Ms Beaumont says.
"The DCS is expected to come into force in October 2024. The journey to bring the rest of the DTA into force will take several years and will be a major part of our near-term prudential work programme over the coming years. Extensive public consultation is planned, and we look forward to engaging with all interested stakeholders to promote the prosperity and well-being of New Zealanders and contribute to a sustainable and productive economy."
More information
Read Kerry Beaumont's speech:
(Another) Seismic Shift in New Zealand: Banking regulatory reform - the Deposit Takers Act 2023 (PDF, 732KB)
