Change brings exciting future for Reserve Bank

Venkat Raman

Auckland, July 11, 2019

RBNZ Governor Adrian Orr

Collective responsibility, modernisation of governance, a new Board of Directors, move towards a classless society and a more robust deposit taker regime are among the issues currently being addressed by the Reserve Bank of New Zealand (RBNZ).

Governor Adrian Orr said that RBNZ will have a Corporate Board on the success of the model operating in the public and private sectors.

Strategic Direction

“The Board will set the strategic direction and risk appetite for the Reserve Bank. Like any Board, it will be responsible for the Bank’s decisions and actions, but will delegate the exercise of many of its functions and powers to the Governor and the management team, and empower them to manage the Reserve Bank,” he said.

Mr Orr was speaking to the members and delegates attending a Conference of the Financial Services Institute of Australasia (FINSIA) in Auckland this morning (July 11, 2019).

He said that the new Governance Board will be responsible for overseeing our spending decisions and exercising appropriate accountability for our activities and use of public resources.

“I am no longer the sole decision-maker at the Reserve Bank of New Zealand,” he said.

Mr Orr said that as a part of its modernising strategy, RBNZ will build a stronger and more diverse team of people to perform the role as ‘caretakers or kaitiaki of the financial system.’

“This involves sourcing an increasingly diverse workforce, giving staff the skills and tools they need, and building our leadership capability framework. Our challenge is to attract, retain and motivate people to lead the Reserve Bank in a fulfilling career,” he said.

The Tane Mahuta Approach

Mr Orr said that ‘Tane Mahuta,’ a Maori legend is used to tell the story of RBNZ.

Tane Mahuta, the God of the Forest and Birds, separated the Earth Mother (Papatuanuku) and the Sky Father (Ranginui) so that the Sun could shine in and life could flourish.

“Thereafter, Tane Mahuta served as the Kaitiaki (Guardian) of the Forest System, protecting it against threats and enhancing the wellbeing of everyone within it,” Mr Orr said.

He said that Te Ao Māori strategy is a critical part of accepting diversity and inclusion.

“So is upgrading our data management systems and strengthening our digital security. All these elements will make us a constructive, future-focused employer, and support us in delivering our objectives successfully,” he said.

Reserve Bank Act Review

Mr Orr said that the Phase One of the Review of the Reserve Bank Act is focused on Monetary Policy, the outcome of which was a new objective to support maximum sustainable employment as well as achieving price stability.

“There is also a new Monetary Policy Committee, which is now in place and delivering. The Committee has made two decisions on the Official Cash Rate so far. The Second Phase is looking at the Bank’s financial stability function. The process started last year and will run through until the middle of next year, when legislation is due to be introduced to the House. It will continue beyond that, as there will be more detail to work out and implementation to be planned,” he said.

Full Service Central Bank

The government has decided to keep responsibility for prudential regulation with the Reserve Bank. This makes sense given New Zealand’s size. However, this regulatory model is not just about being cost-effective.

“In our story of the Reserve Bank as the Tāne Mahuta of New Zealand’s financial system, our money and foreign reserves are the sap, and our payment and settlement systems allow money to flow round the system, and support our regulated financial institutions, our grafted branches,” Mr Orr said.

Keeping prudential regulation and supervision in the same institution as monetary policy, currency issuance, our payment and settlements systems and our markets functions, means we maximise the synergies between the different areas. As a full service Central Bank, we can leverage our different tools and market functions and adapt our response as circumstances dictate, he said.

Future of Cash

Mr Orr said that the Bank is currently reviewing production and movement of money through the ‘Future of Cash’ Project (Te Moni Anamata) to ensure sure that New Zealanders, the financial system and RBNZ are ready and resilient to changing uses and demands for cash.

“We see a ‘less cash’ not ‘cashless’ society evolving rapidly. Why not cashless? There are many reasons, in particular financial inclusion and business continuity, that cash plays an important role in promoting,” he said.

RBNZ is renewing its payment and settlements systems to enhance reliability and security and meet customers’ needs better. Banking the banks is a 24/7 task globally, and we must ensure the highest of operational standards.

“We are already increasing our capability to deliver effective prudential supervision, as the IMF FSAP and Trowbridge report on CBL Insurance suggested we should. This means more skilled people on the ground. It also means building the right analytical frameworks, taking a more sceptical view, and being more willing to act. Banks and insurers can expect us to be more intrusive in our supervisory approach. This is already underway,” he said.

New Deposit-takers Regime

The government has announced that there will be a new ‘deposit takers’ regime, combining the current separate regime for banks and non-bank deposit takers.

Mr Orr announced that there will be a new Deposit Insurance Scheme, with a limit of between $30,000 to $50,000 per customer, per account.

“This will be an important element in the regulatory toolbox. We will build and improve our relationships with our stakeholders. The final part of our strategy is building our relationships with stakeholders. We want to continue to foster co-operation, transparency and mutual trust among our domestic co-regulators, wider stakeholders and global peers,” Mr Orr said.

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