The Government's review of the Reserve Bank of New Zealand Act will establish a new process for setting lending restrictions, such as loan-to-valuation restrictions on bank home loans, and introduce what appears to be a more active role for the Minister of Finance.
Announcing plans for the long anticipated deposit insurance scheme and the Deposit Takers Bill on Thursday, Finance Minister Grant Robertson noted the reforms will include a new process for setting lending restrictions, such as loan-to-valuation (LVR) ratio restrictions.
“This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict. The Reserve Bank will then have full discretion to decide which instrument is best suited to use and how the restrictions are applied,” Robertson said.
A Memorandum of Understanding signed by Finance Minister Bill English and Reserve Bank Governor Graeme Wheeler in 2013, includes LVR restrictions and three other so-called macro-prudential tools the Reserve Bank can use to try to dampen excessive growth in credit and asset prices and strengthen the financial system. At that time English said the ultimate decision on any macro-prudential intervention would be taken by Wheeler. However, he was to consult with the Finance Minister and Treasury from the point where the Reserve Bank was actively considering macro-prudential intervention, and inform them prior to making any decision on deployment of a macro-prudential tool.
Now Robertson says the types of lending that lending standards may apply to, such as residential property or agricultural loans, will be prescribed by regulations, leaving the types of borrowers and the types of macro-prudential instruments used to be set by the Reserve Bank in standards set by the Reserve Bank. More broadly these standards will replace existing conditions of bank registration.
The Government says empowering the Reserve Bank to set lending standards that define specific tools is important in supporting the Reserve Bank’s operational independence in setting macro-prudential policy. There will, however, be a role for the Minister of Finance in changing the scope of lending standards.
"Cabinet has agreed that the Deposit Takers Bill will include a requirement that the Minister of Finance can make regulations, following consultation with the Reserve Bank, defining the type of lending that lending standards may relate to. This reflects the legitimate interest of elected representatives in setting the permitted scope of this power given the potentially significant distributional effects it may have, and the potential tensions between the Reserve Bank setting lending restrictions to achieve its financial stability objective and wider governmental objectives," the Government says.
Using standards rather than conditions of bank registration as the primary tool for imposing prudential requirements on deposit takers will recognise that prudential requirements are often of a legislative character, the Government says. The shift to standards mimics Australia where the Australian Prudential Regulation Authority issues prudential and reporting standards.
"I.E. establish legally binding obligations for all deposit takers, or classes of deposit takers in contrast to non-binding guidance a regulator may choose to issue, and provide a more robust statutory framework for setting prudential requirements. More specifically, it will replace conditions of registration, which define most of the rules that registered banks must adhere to in order to operate in New Zealand with standards, which are a form of delegated legislation. Standards will be set by the Reserve Bank and be classified as secondary legislation under the Legislation Act 2019, which means they will be subject to parliamentary oversight and potential disallowance via the Regulations Review Committee."
"This approach maintains the Reserve Bank’s operational independence in setting prudential rules, in line with international best practice, while providing a greater degree of transparency and oversight than the current approach, which primarily uses Conditions of Registration."
"The approach agreed to by Cabinet will cover the range of matters currently provided for via conditions of registration, but with more clarity where required. For example, the addition of liquidity requirements and lending standards, which are currently provided for under the broader heading of ‘risk management systems and policies’. The scope of standards is also intended to be broad enough to enable the Reserve Bank to set standards in relation to the full range of matters covered by the Basel Committee on Banking Supervision’s Core Principles, should it choose to do so," the Government says.
"The specified matters standards may relate to will be set out in the Deposit Takers Act, and may be extended via regulations. This approach aims to provide a balance between clarity on the scope of the powers being delegated to the Reserve Bank and the flexibility for these powers to be adjusted in future to accommodate new developments."
46 Comments
I heard once a great political idea that goes something like - when creating policy, imagine if your worst enemy gaining control of it. Is it still a good idea?
National will come back to power, just as labour will after them. Is it a good idea to take away the reserve banks independence even further? (Not that they are particularly independent now)
The scope of standards is also intended to be broad enough to enable the Reserve Bank to set standards in relation to the full range of matters covered by the Basel Committee on Banking Supervision’s Core Principles, should it choose to do so," the Government says.
A definite government thumb on the scale of RBNZ independence and ideology.
Looks and smell like communism- nothing is independent, everything is centrally controlled.
If you think it is bad that Robertson ignores RBNZ and Treasury's advice and proceeded with quantitative easing (QE), just wait till he gets to write his own regulatory rules.
Communism is anything that threatens your river of untaxed gains from the property Ponzi, judging by your posts.
The Reserve Bank is independent? Pull the other one. The Reserve Bank is a vassal outlier of the Federal Reserve. According to many defeated and morose posters, Mr Orr has 'no option' but to implement as a mirror-image whatever the Fed does. If the Fed implements QE, we must implement QE. If the Fed slashes interest rates, we must slash interest rates.
I am more comfortable with a democratically elected NZ government having oversight of the Reserve Bank than I am with them taking their instructions from the US.
https://www.rbnz.govt.nz/monetary-policy/monetary-policy-tools/large-sc…
Expanded Large-scale asset purchases - 12 August 2020
'The Monetary Policy Committee agreed to significantly expand the LSAP programme potential to $100bn, up from the previous $60bn limit.
Our Large-scale asset purchases programme will buy up to $100bn of NZ Government Bonds, Local Government Funding Agency (LGFA) Bonds and NZ Government Inflation-Indexed Bonds in the secondary market by June 2022.'
Under whose direction?
Reserve Bank repeatedly warned Government money printing would lead to house price inflation
Agree Tom. Another reason to follow fed is to be protect himself of any blunder as will be able to hide behind fed.
This time he has screwed and is caught with no where to hide and consequenceof all is yet to be feltand when it will, it will be big.
Reset of reserve bank.
'A house' is the be all and end all of human life as far as you are concerned. When you think of an investment basket, all the eggs must be houses. The US had the same rock-solid certainty around housing - and it led us to the earth-shattering GFC, and over a decade of monetary mess and madness that has followed in its wake. Yes, the US housing market collapsed - it really did happen. Even today the extraordinary cognitive dissonance around this event continues. The housing market collapsed in the largest and most influential economy in the world. Something that was thought impossible by hundreds of millions of people really did happen. If it can happen there, it can surely happen there.
Diagnosis:
Selection bias
"The tendency to notice something more when something causes us to be more aware of it, such as when we buy a car, we tend to notice similar cars more often than we did before. They are not suddenly more common – we just are noticing them more. Also called the Observational Selection Bias." - Wikipedia
"Diagnosis" - Are you a doctor all of a sudden? Also, that is a description of the Baader-Meinhof Phenomenon, and has little to do with selection bias, although it is a poorly described version of a subset of it. Furthermore, neither selection bias, nor Baader-Meinhof Phenomenon have anything to do with what TV said.
You're really putting your intellect on display today.
"Looks and smell like communism- nothing is independent, everything is centrally controlled."
Mr Dunning-Kruger thinks getting more democratic oversight of the _central_ bank is CoMmUnIsm?
To eradicate the scourge of communism central banks should be abolished and we should let the free market set interest rates.
Hilarious, neoliberals these days see commies everywhere. It is not the 80's anymore the iron curtain collapsed long ago. The only communists with real power that are still around are such hardcore capitalists that Adam Smith would be proud of them.
The question is do we really prefer our country's economy being ruled by a non democratic institution influenced by the banks (excuse me, independent) or by some elected officials you will may be able to change on the next election? The answer is clear but obviously the RBNZ's policies have been benefiting asset holders and some don't want that to change anytime soon.
This step confirms that Mr Orr has goofed up BIG time and it is because of Mr Orr's rigidness that such action is required.
May be Jacinda Arden as, had mentioned that wanted to curb speculative demand was interested in controlling interest only loan as also to bring fairness ( in her own words between investors and FHB and the reason for tax change) but may be Mr Orr is resisting for vested biased interest, as a result given time till may to work it out.
It will be interesting though Mr Orr's ego is bigger than himself so unlikely to act as also his interest lies in supporting the ponzi = NZ economy.
They will not be touching neither DTI not Interest Only loan - alittle.
One should see the timming of there announcement just before April and RBNZ response just after April. In between April data which should be low will be used by both - Mr Robertson taking credit for his announcement and Mr Orr for using that data to avoid or delay in taking action.
Though interest only loan - ponzi or no ponzi should go to have level playing field for both Investors as well as FHB.
Hmmm....taking steps to set standards on bank lending, announcing a deposit guarantee, and earlier Westpac announcing they are for sale as well...all at (more or less) the same time. If the Ponzi (banks and specuvestors) think endless big bonuses, tax free gains, and the assumption that the Govt will bail them out regardless is all locked in forever they might be surprised. News flash, that Govt was voted out a while back.
Well done to the Govt trying to save the greedy bankers and speculators from themselves, not that they will listen.
Popcorn.
Free markets would be desirable if they were ever allowed to happen. Globally, central bank policy of inflation targetting is at the lobbying and behest of commercial banks. Target at a low inflation band=low interest rates=inflated mortgages=inflated profits. Instead of allowing central banks to target inflation through debt purchases, allow those debt issues to float at free market levels=asset bubbles cured, amd an end to depositors being mugged by banks. Hypocritically, banks dont want that.
Reading why Central banks were made independent is comedy gold:
"The bottom line is that if the government is given control of the economy, they might resort to indiscriminate money printing which will ultimately lead to economic collapse. This is what has happened in many ancient civilizations including Rome. Hence, to prevent this, central banks have been made independent of government authority."
https://www.managementstudyguide.com/central-banks-be-independent.htm
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