Safer banks and strengthened bank accountability
The Coalition Government today announced moves to make New Zealand’s banking system safer for customers through a new deposit protection regime, and work to strengthen accountability for banks’ actions.
The in-principle decisions are part of Phase 2 of the Review of the Reserve Bank Act, which is making sure the 30-year old laws regulating our banking system are up to scratch.
“Now is the right time to check we have the tools to make sure banks meet their obligations to New Zealanders, and the powers to enforce them,” Grant Robertson says.
“The Government is also making sure New Zealand follows international best practice for promoting public confidence in our banking system, including on the issue of depositor protection.”
The Review of the Reserve Bank Act was agreed in the Coalition Agreement between Labour and New Zealand First. The Coalition Government has already delivered on Phase 1 of the review, by updating New Zealand’s monetary policy settings to require the Reserve Bank to focus on employment outcomes as well as price stability.
Cabinet today signed off an in-principle decision to introduce a deposit protection regime in New Zealand as a result of work under Phase 2 of the review.
“New Zealand has been an outlier for many years in that we don’t have a formal deposit protection regime to support Kiwis if a bank were to fall over,” Finance Minister Grant Robertson says.
“Our banks are safe and sound. However, the OECD and IMF have said that our banking system might be more vulnerable in a crisis because we don’t have a deposit protection regime. A deposit protection regime will increase public confidence in the banks.”
The Government is proposing a limit between $30,000 and $50,000 for the deposit protection regime. This would cover 90% of individual bank deposits in New Zealand, which is similar to international schemes. It follows consultation with the sector.
“Overseas experience shows that bank failures can be the result of a few bad decisions that normal bank customers had no influence over and no idea about. A deposit protection scheme will help protect customers like a young couple saving a deposit for a house, people saving for their retirement, or the small business operator who keeps money aside for a rainy day.”
The Government is also making sure bank regulators in New Zealand have the right tools to hold the banks and their executives to account.
Cabinet has decided that the next consultation in Phase 2 of the RBNZ review will look at whether the Reserve Bank’s supervisory regime is sufficiently strong. It will also review the enforcement tools the Reserve Bank has, including whether penalties are tough enough to discourage certain behaviour.
The Government is considering adopting elements of overseas frameworks, which would increase the responsibilities and accountabilities of senior executives for the actions of New Zealand’s banks and licensed deposit-takers.
Australia’s Bank Executive Accountability Regime and the UK’s Senior Managers Regime are two examples of frameworks that assign duties to individual decision-makers at banks, so that if things go wrong the individuals directly responsible can be identified and held to account.
“These regimes go a step further than New Zealand’s current Director Attestation Regime for banks, by also holding senior managers to account for the prudent management of their bank within their area of responsibility,” Grant Robertson says.
Final decisions on the full details of a deposit protection regime and strengthened accountability standards will be announced in early 2020. More information is available at: https://treasury.govt.nz/news-and-events/reviews-consultation/reviewing-reserve-bank-act