Tuesday 25th June 2019
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The panel set up to review the Reserve Bank's governing legislation wants broader public input on some curlier policy questions, such as the decision-making around quantitative easing, the intensity of bank supervision, and what a deposit insurance regime should look like.
The panel, tasked by the government to dig into the Reserve Bank Act, launched its second round of consultation yesterday. That was crowded out by Finance Minister Grant Robertson's decision in principle to adopt deposit insurance for amounts between $30,000 and $50,000, which account for 90 percent of deposits and 40 percent by value.
Bernard Hodgetts, the panel team's director, told a media briefing the panel wants to hear from a broader section of the public than the first round. That drew 67 written submissions, largely from banks, finance companies, insurers, law firms, other professional bodies, academics, former central bank governors and academics.
The consultation is in two parts - a 106-page paper seeking greater detail on Robertson's in-principle decisions and a 178-page document on the next tranche of issues under the review's terms of reference.
Among the questions posed, the panel wants feedback on how quantitative easing - where the Reserve Bank would inject money by buying government bonds or other financial assets - should be conducted. Would the central bank need ministerial consent to buy assets beyond government debt, and are there other issues the group should consider..
The paper said there is a tension with fiscal policy in a credit easing that blurred the boundary between government and an independent central bank. It drew on European and UK experience and said it seemed appropriate for the Reserve Bank to be independent in that area.
Similarly, the paper seeks feedback on how much power the minister should have in determining the Reserve Bank's scope and objectives in intervening in foreign exchange markets. The central bank can attempt to smooth the peaks and troughs through active trading in FX markets and the review found a number of areas where the law could be updated to give more independence to the bank.
Another area the panel wants feedback on is in the level of bank supervision and what regulatory tools and powers the Reserve Bank should have. That includes questions of broadening out the attestation regime - essentially an honour system in which directors say their bank is complying with the rules under threat of criminal sanction, something that hasn't been pursued before.
The review also wants to know whether the Reserve Bank should adopt more intensive supervision, and whether its five-year funding agreement with the minister is still suitable. Introducing an industry levy is among the options being considered to fund that supervisory role.
Submissions close on Aug. 16.
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