5 December 2023 – The Reserve Bank of New Zealand – Te Pūtea Matua has announced two key decisions following the second round of public consultation on its liquidity policy review (C2).
Director of Prudential Policy, Kate Le Quesne says our liquidity policy is one of a number of measures that help ensure deposit takers in New Zealand remain in sound financial condition, even in times of stress.
“Our liquidity policy requires deposit takers to carefully monitor and manage their ability to make payments and to have a minimum amount of cash, or assets they can sell for cash, to make these payments,” Ms Le Quesne says.
In C2 we sought feedback on three significant issues:
Whether or not to adopt the international liquidity metrics that have been developed since 2010 that are used by the largest countries and banks in the world;
What constitutes a ‘liquid asset’ under our policy – that is, an asset that deposit takers can easily sell for cash in times of financial stress; and
Whether or not we should have a proportionate approach for applying liquidity requirements to the smallest deposit takers under the new Deposit Takers Act (DTA).
“We received valuable feedback from stakeholders that informed our decision making and next steps,” Ms Le Quesne says.
“We decided we will not adopt the international liquidity metrics as our existing metrics work well and there would be a high cost to change them.
“We have also confirmed the assets that will be classed as liquid under our new policy, which will be comprised of Level 1 and Level 2 liquid assets. Level 1 liquid assets will include NZ Government Bonds and related instruments. Level 2 liquid assets will include Local Government Funding Agency securities and highly rated Kauri securities, and will be subject to a cap.
“There was wide support for applying liquidity requirements proportionately, with the caveat that the bar for compliance isn’t too low, as we want smaller deposit takers to be strong too. We will be consulting on what proportionate and simplified liquidity requirements should look like in our next consultation.”
Liquidity Policy Review timeline:
Our next consultation paper (C3) is expected to be released in the April Quarter, 2024 within our broader consultation on the core standards of the Deposit Takers Act which will provide a new single regulatory framework for all deposit takers. We will consult on additional policy issues, including those that follow-on from the C2 key decisions.
Our fourth and final consultation paper (C4), to be aligned with the DTA core standards timeline, is expected to be an exposure draft that will contain the proposed final liquidity policy text and seek feedback on a proposed transition period.
We expect the final liquidity standard to be published in late 2026/early 2027, followed by a reasonable transition period.
More information
Review of Liquidity Policy (BS13) https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=a6a45118cb&e=f3c68946f8
