Cabinet’s decisions announced today by Finance Minister Grant Robertson to reform the governance and accountability
arrangements of the Reserve Bank are commendable. Key among the decisions is establishing a governance board that will
be responsible for all functions of the Reserve Bank, except those undertaken by the Monetary Policy Committee.
The changes signalled by the Minister of Finance will resolve one of the most troubling public sector governance
problems said New Zealand Initiative Chair, Roger Partridge.
“The Reserve Bank governor currently has unprecedented power, with sole decision-making responsibility over banks’
conditions of registration. As the Initiative disclosed in our April 2018 report, Who Guards the Guards? Regulatory governance in New Zealand, successive governors’ lack of oversight would not matter if our central bank’s regulatory performance were
consistently exemplary. But our research found the Reserve Bank commanded neither the respect nor the confidence of the
financial institutions it is tasked with regulating.” says Partridge.
Among other recommendations in Who Guards the Guards?, the Initiative recommended that the government should replace the Reserve Bank’s current “single-member decision-making
model” with a board governance model that is common among other regulatory agencies, including the Reserve Bank’s sister
regulator, the Financial Markets Authority. The Initiative is “extremely pleased” the government has adopted this
recommendation, Partridge said.
The Initiative has reservations about other aspects of the Cabinet’s decisions concerning the Reserve Bank’s governance
and accountability. For example, the proposals announced by the Minister of Finance will see the role of “external
monitor” of the Reserve Bank transferred to The Treasury.
The Initiative had recommended that this monitoring function should be transferred to a new, independent specialist
monitoring agency. This recommendation was echoed in Australia earlier this year by the Hayne Royal Commission into
banking. Commissioner Hayne recommended a new and independent authority to oversee both the Australian Prudential
Regulatory Authority (which performs the prudential regulatory function undertaken here by the Reserve Bank) and the
Australian Securities and Investment Commission (Australia’s equivalent of our FMA).
“Like the Hayne Royal Commission, we recommended an independent oversight authority because of systemic shortcomings in
oversight of regulatory agencies by government departments. These shortcomings were revealed by the Productivity
Commission in its 2014 report, Regulatory Institutions and Practices. Time will tell whether The Treasury can perform its new external monitoring role better than other government
departments.” Partridge said.