Reserve Bank reform to improve governance and accountability

  • Hon Grant Robertson

The Government is taking further steps to strengthen New Zealand’s financial system through reforms to the Reserve Bank Act to improve the Bank’s governance and accountability, Finance Minister Grant Robertson says.

New Reserve Bank Act legislation was tabled in Parliament today as part of the Review of the Act carried out under the Coalition Agreement between Labour and New Zealand First.

“The changes announced today are part of the Government’s work to make sure our financial system remains strong and stable. This is particularly important as the economy stands up to the global recession caused by the COVID-19 pandemic,” Grant Robertson said.

“This work recognises the significant changes to the economy since the Reserve Bank Act was put in place 30 years ago. We have already passed legislation to modernise the objectives and decision-making processes of the Bank. We’re making sure the Reserve Bank can continue to keep New Zealanders’ finances safe through its management and oversight of the financial system by modernising the 30-year old Act.”

Key changes in the Reserve Bank Bill introduced today include:

  • Adding an overarching financial stability objective, to complement the recently updated monetary policy objectives.
  • Strengthening decision-making through moving from a single decision maker to a board model.
  • Ensuring operational independence is balanced with appropriate accountability, with a number of changes to update the Reserve Bank’s accountability and reporting frameworks to align with state sector practice.
  • Providing for a Financial Policy Remit issued by the Minister, setting out matters that the Reserve Bank board must have regard to when setting and implementing its strategic approach to financial stability.
  • Increasing accountability and transparency in the Reserve Bank’s management of foreign reserves, by requiring the Reserve Bank and the Minister to agree a Foreign Reserves Management and Co-ordination Framework.
  • Changes to the funding model to promote transparency and allow for appropriate recovery of costs, through industry levies and fees.
  • Providing the Council of Financial Regulators with a statutory mandate to support effective and responsive regulation of the financial system by facilitating cooperation and coordination between its members.
  • Expanding the Reserve Bank’s functions in respect of cash, including supporting public confidence in banknotes by enabling the Reserve Bank to set standards for devices that check the authenticity and/or quality of banknotes.

Further details can be found here. The reforms were introduced to Parliament today. The Bill is expected to be read for a first time after the election.

Phase 1 of the Reserve Bank Act reforms have already been passed to introduce the Reserve Bank’s employment mandate to sit alongside inflation targeting in its monetary policy objectives.

Further work under Phase 2 is focussed on the introduction of a new ‘Deposit Takers’ Act, including a deposit insurance scheme for New Zealand. Due to the impact of COVID-19, consultation on the Deposit Takers Act was extended until 23 October. These reforms are expected to be introduced to Parliament in 2021.