The Treasury
Reserve Bank Act Review Phase 2 Submission Information Release
March 2019
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The Co·operative Bank Ltd Cnr Featherston & Ballance Streets PO Box 54, Wellington 6140, New Zealand Telephone (04) 495 7700, Fax (04) 495 7701 www.co-operativebank.co.nz
SBS Bank 51 Don Street, PO Box 835, Invercargill 9840, New Zealand. Ph 64-3-211-0700, Fax 64-3-211 0734, Freephone 0800 502 442, www.sbs.net.nz
TSB Bank Limited 120 Devon Street East, PO Box 240, New Plymouth 4340, New Zealand. Freephone 0800 872 226, www.tsb.co.nz
4 February 2019
Phase 2 of the Reserve Bank Act Review The Treasury PO Box 3724 Wellington 6140
SAFEGUARDING THE FUTURE OF OUR FINANCIAL SYSTEM - PHASE 2 OF THE RESERVE BANK ACT REVIEW Thank you for the opportunity to provide feedback on your consultation: Safeguarding the future of our financial system – The role of the Reserve Bank and how it should be governed. This submission has been written on behalf of the NZ domestic and community-owned banks and is supplemental and additional to the New Zealand Bankers’ Association (NZBA) submission on the same consultation. As members of the NZBA, we fully endorse the industry submission made by them, however, there are some matters of specific relevance to this group that we wish to address in this short submission. As a result, we have not addressed all the questions within the consultation, only those that we have a specific view on.
As “New Zealand owned” banks we believe we hold an important position in a banking industry that is dominated by Australian owned banks. The ownership structure of our entities’ mandates that our primary objective is to return value to our Members and Communities and to operate in a way that ensures long-term sustainability and financial stability. We commend the review of the RBNZ Act 1989 and fully support any move to ensure that New Zealand’s financial regulation framework remains fit for purpose.
Responses to questions within consultation paper:
What high-level financial policy objectives should the RBNZ have? • As outlined in the NZBA industry submission, we support financial stability as a high-level financial policy objective of the RBNZ. • We encourage the on-going inclusion of efficiency as a high-level objective but support a mandate of regulatory efficiency as the main focus.
• We believe, however, that this needs to be accompanied by a clearer definition of regulatory efficiency which should encompass the applicable aspects of competition, fairness, and market allocation. Additionally, simplicity of regulation should be required ensuring that regulations are not overly burdensome or costly to comply with. • The RBNZ should ensure that the regulations it imposes support a resilient and thriving financial system by way of efficient regulation. This means that its regulations should be supportive, rather than determinative of, economic direction. • Despite the concerns around a broad definition providing confusion around competing objectives, we note that historically the RBNZ have been able to balance these successfully. • In addition, an efficiency objective ensures a check that pursuit of financial stability alone does not become an impediment to the overarching purpose of a sustainable and productive economy. • In particular, as smaller, domestic banks, we support an efficiency mandate that will empower the RBNZ to promote fairness across the regulatory spectrum and ensure a level playing field within the NZ financial services industry. • Other than financial stability and efficiency, we are not supportive of RBNZ having any further objectives as this may divert focus from these core objectives.
Should there be depositor protection in New Zealand? • Our collective operating mandates ensure a strong focus on customer well-being, and we all have a strong commitment to good customer outcomes. To that end we are supportive of work to ensure effective depositor protection, as long as this is balanced with a focus on regulatory efficiency in how this protection is achieved. • We note that the NZ financial system already has a number of existing levers that achieve depositor protection including the Open Bank Resolution (OBR) and financial buffers, including the recent capital proposals, which, if implemented, will further strengthen bank resilience. • In addition, the current OBR resolution method already incorporates a form of depositor insurance in the NZ market by virtue of the ‘de minimis’ element which could be expanded to incorporate deposits at an appropriate level in line with the IMF recommendations from the 2016/2017 FSAP. • We believe that additional regulation in relation to depositor protection could result in increased costs for the industry and consumers, and as such we suggest that the review should include an assessment of all the relevant consumer protection levers to ensure the final framework optimally protects consumers without creating unnecessary market distortions. • For example, if deposit insurance was to be considered any new scheme would have to be carefully designed to ensure that the costs are assessed on a system-wide basis rather than on a bank-by bank basis. This is particularly important for institutions with a smaller asset base to ensure they are not penalised or disadvantaged due to their relevant scale. The scheme design will be critical to ensuring fairness and balanced outcomes for all stakeholders. • We understand that if there is support for the introduction of depositor protection, the form and details of the scheme will be subject to further consultation and we look forward to engaging with you further on this topic.
Should prudential regulation remain with the Reserve Bank? • We support prudential regulation remaining with the Reserve Bank under an enhanced status quo model that includes clearer objectives and increased resourcing to enable a greater focus on financial system responsibilities.
• We believe that the size and composition of the NZ financial sector can be well supported by the existing regulators and therefore do not see the need for an additional standalone prudential regulatory authority. In addition, we believe such a separation would create unjustified additional regulatory costs without any tangible benefit to either the system or consumers. • We would welcome further consultation and engagement on the resourcing focus of the Reserve Bank later in the review.
Once again thank you for the opportunity to provide feedback on this your consultation.
Yours sincerely
[1] [1] [1]
Jeremy Valentine Tim Loan Herman Visagie GM Risk, Legal & Governance Chief Financial Officer Chief of Staff & General Counsel The Co-operative Bank SBS Bank TSB