The Reserve Bank’s approach to prudential regulation and supervision is being updated to ensure financial stability for
Talking at the Financial Markets Law Conference in Auckland, Deputy Governor / General Manager of Financial Stability
Geoff Bascand said “Financial stability is vitally important to New Zealanders. The aim is to strengthen our ability to
address vulnerabilities in the financial sector.”
“We are reviewing key regulatory requirements to boost the resilience of our banking and insurance sectors, and we are
intensifying our supervision of financial institutions. In short, we are recalibrating the rules and our enforcement of
Mr Bascand’s speech set out the Reserve Bank’s approach to financial stability, and how its regulatory and supervisory
regimes fit together.
“We view our regulatory and supervisory tools and the ability to use them independently as a package. Our role is to
monitor developments in the financial system, enhance its resilience by setting appropriate regulatory requirements and
verifying they are being followed. And, if necessary, mitigate the impact to depositors and taxpayers of institutional
distress or failure,” said Mr Bascand.
Market and self-disciplines are vital forces for ensuring firms serve customers and investors effectively. Given
diverging incentive structures and information advantages, experience shows that they are not sufficient to protect the
public interest and ensure a healthy and dynamic financial system.
The Reserve Bank is reinvigorating its supervisory approach to apply more vigilance and scepticism of financial
institutions’ compliance and risk management. This means more investment in people and systems, more reviews, and a
deeper scrutiny of boards and management.
“Regulated entities can expect our supervisory approach to intensify, and for the Reserve Bank to take enforcement
action where necessary.
“The Government’s ‘in-principle’ decisions to modernise the Reserve Bank through Phase 2 of the review of the Reserve
Bank Act are reinforcing expectations for the Reserve Bank to strengthen its financial stability role and supporting
investment in our capability to deliver effective regulation and supervision,” added Mr Bascand.
Under the proposed governance framework, the Reserve Bank’s Board is responsible for the Bank’s regulatory and
supervisory approaches. This will result in even more transparency and accountability in how the financial stability
objective is delivered.
The Reserve Bank regulates and supervises banks, insurers and NBDTs, oversees payment and settlement systems, and
monitors and liaises with financial markets to manage liquidity in the banking system. The Reserve Bank works with other
agencies that have responsibility for the financial system on issues of mutual interest.