The Reserve Bank says it will complete a stock-take of regulations covering banks and non-bank deposit takers by September next year to ensure they're as streamlined as possible given the layers of complexity added with the Basel III regime.
While New Zealand isn't a member of the Basel committee on banking supervision or the G20's financial stability board the Reserve Bank has developed its regulatory framework to be broadly in tune with the international reforms, deputy governor Grant Spencer said in a speech to the NZ Banker's Association. Australia is on the committee, meaning the parent companies of New Zealand's major banks must comply with the Basel standards.
"As a small debtor country hosting foreign banks and reliant on international capital markets, we cannot afford to be too far removed from the Basel tent," Spencer said in a speech that outlines the timetable for a regulatory stock-take.
Basel III is a global regulatory standard for banks which introduced minimum requirements for bank capital adequacy, stress testing and market liquidity risk. Most of its regime is broadly in place, adding to the requirements of Basel I and II relating to required levels of loss reserves. While New Zealand's central bank is "broadly happy" with the stronger prudential regime, the new rules are "more complex" and have "expanded at a rapid pace," hence the stock take, Spencer said.
"Our aim here is not to fundamentally change or roll back the regulatory framework," he said. "We want to shape and thin the stock of regulation, not undertake a major reformulation of the system."
The central bank plans to establish an expert panel and hold industry workshops starting this month and develop draft proposals between August and February 2015, with the aim of having a discussion document out for comment in May or June next year.
Explaining the need for financial sector regulation, Spencer said the interests of banks and non-bank deposit takers can differ from those of society as a whole.
"For example, they may face incentives to increase leverage and risks in the expectation of achieving higher returns, without bearing the costs if things turn out badly," he said. "Banks in particular sit at the heart of the payment system so a bank failure can quickly spread and affect people and businesses who are not direct customers of the failed bank."
The Reserve Bank has previously estimated the potential cost of a serious financial crisis could amount to between 10 percent and 20 percent of gross domestic product.