RBNZ on governance and banking in NZ

The Reserve Bank is seeking to evolve the way it supervises banks, Reserve Bank Governor Alan Bollard said today.

Speaking in Christchurch to the Institute of Directors, Dr Bollard outlined the internationally distinctive way in which the Reserve Bank supervises banks in New Zealand and emphasised that the Reserve Bank remains committed to its overall approach, which places significant responsibility on bank directors to maintain sound and prudent practices.

However, Dr Bollard also indicated that the Reserve Bank is reviewing some parts of the system now in place.

"We believe the New Zealand approach is an effective way of promoting a sound financial system. We also believe it reduces the moral hazard risks associated with conventional banking supervision, and strengthens the effectiveness of market discipline on banks. The fact that the New Zealand banking system is currently one of the healthiest in the world - with high asset quality, sound risk management practices and good capitalisation - bears testimony to this. However, we are certainly not complacent, and we remain ever-watchful to detect incipient signs of financial distress, and we stand ready to intervene if necessary. Moreover, we regularly review our supervisory framework to ensure that it continues to be an effective means of promoting a sound and efficient financial system. In that context, we are currently reviewing a number of our supervision policies, with a view to further

Dr Bollard said the Reserve Bank continued to have confidence in the way banks are supervised in New Zealand. However he said "We have recently sent a comprehensive questionnaire to the boards of all banks to develop a greater understanding of the means by which directors satisfy themselves that their banks' disclosures are not false or misleading and that their systems for controlling risks are robust. * We are also surveying auditors to enhance our understanding of the audit processes in relation to banks and to assess the adequacy of existing audit requirements for banks."

Dr Bollard concluded by saying that the policy questions being faced in New Zealand were increasingly being faced world wide as banks became more global and "Within the next year or two, we will have made substantial progress in seeking to resolve some of these issues."

The full text of the speech can be viewed at http://www.rbnz.govt.nz/speeches/0132484.html

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