RBNZ sets up facility to lend longer term to NZ banks

The Reserve Bank of New Zealand has announced two new facilities that will allow it to lend up to NZ$2 billion a week to New Zealand's banks for periods of up to a year. The first lending facility, known as the Term Auction Facility (TAF), will operate every Wednesday morning starting next Wednesday and will allow the Reserve Bank to lend to banks against various collateral, including Residential Mortgage Backed Securities. The second lending facility, known as Reserve Bank Bill tenders, will operate on Wednesday afternoons to 'sterilise' or withdraw cash injected through the TAF. Here are the details below of the scheme announced by the Reserve Bank.

The Reserve Bank today announced two new facilities which are intended to support banking system liquidity at a time when offshore markets remain disrupted. The new facilities follow up the Reserve Bank's earlier announcement in May 2008 that it would accept Residential Mortgage Backed Securities (RMBS), as security in its Domestic Market Operations. Two banks (ANZ National and Westpac) have recently announced that they have had RMBS structures approved by the Reserve Bank and more approvals are expected. From 12 November the Reserve Bank will offer the following two facilities: Term Auction Facility (TAF)

• The facility will operate in a similar manner to the Reserve Bank's Open Market Operation (OMO) and will be used to inject cash into the banking system using approved eligible collateral noted on the Reserve Bank's website here.
•  The TAF will be held at 9.30am each Wednesday morning in place of the daily OMO. The TAF will offer up to NZD 2 billion dollars for terms of approximately 3, 6 and 12 months. The Reserve Bank reserves the right to alter both the volume and maturity dates at its discretion.
•  The operation of this facility and the rules and guidelines applying to it will be similar to the OMO. These details can be found on the Reserve Bank's website here
•  Each tender will be pre-announced at approximately 4.30pm on the working day preceding the tender day. Bids will be accepted between 9.30am and 9.45am and it is expected that results will be announced at approximately 10.00am.
•  Settlement will occur on a T +1 basis (transaction day plus 1 banking day).
•  The regular OMOs may be held less frequently, for smaller volumes and with shorter maturity dates.

Reserve Bank bill (RB bill) tenders

• The Reserve Bank will hold a weekly RB bill tender, as required, to withdraw cash from the banking system and sterilise, either partially or fully, the cash injected via the TAF to maintain settlement cash at an appropriate level. The RB bill is an existing instrument but has not been on issue since 1999. Details relating to the RB bill tenders can be found in the Operating Rules and Guidelines on the Reserve Bank's website here
• The RB bill tenders will be held at 2.00pm on Wednesday afternoons, as required. The RB bill tender will typically offer up to NZD 2 billion dollars for a term of approximately 3 months. The Reserve Bank reserves the right to alter both the volume and maturity dates at its discretion (6 and 12 month maturities may also be offered).
• Each week's tender will be pre-announced at 11.00 am on the day of the tender. Bids will close at 2.15pm and it is expected that results will be announced at approximately 2.30pm.
• Settlement will occur on a T +1 basis (transaction day plus 1 banking day).

The attached schedules available here show the TAF and RB bill tender programme to the end of January. These liquidity arrangements will be reviewed in 12 months' time or sooner if demand diminishes.