Spencer defends RBNZ's retail banking supervision that focuses on 'the big numbers'
(BusinessDesk) - Acting Reserve Bank Governor Grant Spencer, who will leave the role next month to be replaced by Adrian Orr, defended the central bank's approach to supervision of the retail banking sector, though noted the government could seek to increase its powers in its review currently underway.
At the finance and expenditure committee's annual review of the RBNZ this morning, Spencer said a Financial Sector Assessment Programme (FSAP) report from the International Monetary Fund, released last year, recommended the central bank set more guidelines for banks and increase compliance checking, but the RBNZ doesn't think that's the best way to go.
"We're not so keen on setting a lot of guidelines, we prefer to set the big numbers - capital ratios, also the LVR," Spencer said. "We do like to understand the business and where the key risks are - to me, that's the essence of supervision.
"It's not getting down into the weeds, it's actually understanding where the big risks are coming on the horizon. That means exchanges, it means interaction, and we do have that: we don't just sit at the end of The Terrace and wait for the letter to come in. We visit them, we talk to them, and we try to understand the business."
Spencer said the RBNZ has scope to do more thematic reviews within the sector, where the central bank looks at how all banks are managing one particular area, such as agricultural lending provisioning, and compares and contrasts the approaches taken.
"You get an idea of what's best practice in the area, and there is potential to share that across the banks, the banks themselves said that it's a useful thing to do," Spencer said. "We want to increase numbers somewhat to do a bit more of that."
The Reserve Bank has kept staffing levels and spending on staff stable in recent years, and garnered praise from committee chair Michael Wood for its cost discipline, though Wood queried whether the bank will need more staff to fulfil the number of projects it has underway and planned for the near future. The central bank has 10 key projects on at the moment, with a total value around $43 million.
Spencer said the bank is looking at that currently, and there may be more pressure on costs including staff costs going towards 2020. He said the government's review of the Reserve Bank Act, which it announced in November last year, may have implications for staffing numbers if it follows the FSAP recommendations for a more intensive supervisory regime