Reserve Bank Act reform: depositor protection steals the limelight, but plenty more to ponder

Tuesday 25 June 2019

Author: David Craig

​​​I​n an article in November last year, we discussed the consultation paper released by the Reserve Bank and Treasury seeking view​s on certain topics within Phase 2 of the Government's review of the Reserve Bank of New Zealand Act 1989 (RBNZ Act). The first of three consultation rounds on Phase 2 is now complete, with 67 written submissions received by the review team.

In response to the first consultation round, Treasury yesterday released both a set of in-principle decisions made and the topics to be consulted on in round two.

In-principle decisions made

While the broader review is ongoing, and is likely to continue into early 2020, the Government has made some early in-principle decisions on a number of substantive issues. The headline-grabbing decision has been the announcement of a depositor protection scheme. This was entirely expected, given New Zealand's outlier status in not having such a scheme and the broad political and public support for it. Nevertheless, there will be a great deal of interest as the details of the scheme design become available – particularly the level of the insured limit (currently set at a relatively low - by international standards - $30,000-50,000).

While depositor protection has stolen the limelight, a number of other important in-principle decisions have also been taken. In particular:

  • The Reserve Bank is to adopt the board governance model already used by other Crown entities. As with the traditional corporate governance model, the board will oversee all decisions of the Reserve Bank (other than those relating to monetary policy). Management functions will then be delegated to the Governor.

  • The Reserve Bank will remain responsible for prudential regulation functions. While the separation of central bank and prudential regulation functions is a feature of many other jurisdictions (notably, Australia), the relatively small size of the local financial sector was considered not to support two agencies.

  • The current dual regime approach for regulating registered banks and non-bank deposit takers (such as finance companies and building societies) will be consolidated into a single regime for regulating “licensed deposit takers". Again, no surprise here. The dual regime approach suffers from obvious duplication and other inefficiencies, which seem unnecessary given the similarity in the activities undertaken by banks and NBDTs.​

  • The Reserve Bank is to have a single high-level financial policy objective of protecting and enhancing financial stability, to replace the current dual objectives of maintaining a sound and efficient financial system.

Round two of the Phase 2 consultation

The topics up for consultation in round two are:

  • ​​​the nature of the prudential regulatory tools and powers the Reserve Bank should have;

  • the Reserve Bank's role in macro-economic policy;

  • the Reserve Bank's approach to supervising and enforcing prudential regulation;

  • management of the Reserve Bank's balance sheet;

  • the Reserve Bank's crisis management powers;

  • how the Reserve Bank should co-ordinate with other agencies; and

  • ​how the Reserve Bank should be funded and resourced.

One issue not up for consultation as part of this review, however, is bank capital adequacy. That (controversial) issue is the subject of a separate consultation, under the existing legislative framework, that is already well-progressed.

Submissions on the round two topics are due by 16 August. The review will then move on to the third, and final, round of consultation for Phase 2 in late 2019. The Government's expectation is that legislation implementing the main decisions from the review should be introduced in the current Parliamentary term.

If you have any questions on the Phase 2 consultation, or would like assistance with the preparation of a submission on round two, please contact one of our banking and finance team or your usual Bell Gully adviser.​​


This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • David Craig

    Partner Wellington
  • Hugh Kettle

    Partner Wellington
  • Murray King

    Partner Auckland
  • David McPherson

    Partner Auckland
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