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August 09, 2017

Grant Spencer, Deputy Governor of RBNZ spoke on the topic of “Banking Regulation” at the KangaNews New Zealand Debt Capital Markets Summit in Auckland, on August 02, 2017. He spoke about the effect of global financial crises on banks and banking regulations, along with the reforms and policies adopted after such crises. Mr. Spencer highlighted that the banking system in New Zealand is highly integrated with international markets and needs to maintain a strong reputation if it is to continue its lead role in "intermediating" New Zealand's financial dealings with the rest of the world.

Mr. Spencer discussed the need for integrating New Zealand with international norms. He highlighted that, “In shaping our regulatory approach—with its emphasis on self and market discipline and being at the more permissive end of the spectrumwe must consider the potential costs of deviating too far from international norms. This is especially important to consider as we seek to tailor the sometimes complex international regulatory environment to New Zealand's relatively vanilla banking system.” The adoption of the key elements of the Basel framework is desirable to integrate the country’s banking system with international financial markets. This integration might result in a gain from a more streamlined regime that is free of unnecessary complexity, but it might also result in efficiency losses if the New Zealand regime ceased to be recognized as broadly in line with the international standards. “Over recent years, we adopted most of the key Basel initiatives, even when some have been less than ideally suited to New Zealand circumstances,” noted the Deputy Governor.

 

The recent IMF Financial Sector Assessment Program report on New Zealand found RBNZ's prudential framework to be less than fully compliant with the Basel Core Principles in many areas. IMF recommends that RBNZ should take on significantly more resources to more proactively engage with the banks; issue more comprehensive rules and guidance on key prudential matters; and more frequently verify and enforce compliance. However, notwithstanding the views of IMF, as per Mr. Spencer, compliance with the international prudential frameworks is not always a black and white choice; the Basel framework sets minimum standards for key prudential requirements but often offers a menu of choices within those standards, for countries to tailor to their specific circumstances. Further, while Basel Committee members such as APRA are more bound to comply with the Basel standards, a small country like New Zealand implicitly has a greater degree of freedom. In conclusion, he stated that the aim is to retain the regulatory philosophy, with relative emphasis on governance and market discipline. 

 

Related Link: Speech (PDF)

Keywords: Asia Pacific, New Zealand, Banking, Basel International Norms, Basel Core Principles, BIS, RBNZ

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