Crisis Management
Section 68 of the Reserve Bank of New Zealand Act requires the Bank to exercise its powers under Part V of the Act (including most of its crisis response powers) for the purposes of:
(a) promoting the maintenance of a sound and efficient financial system; or
(b) avoiding significant damage to the financial system that could result from the failure of a registered bank
In addition, section 31 of the Act (which falls outside Part V) requires the Bank to act as lender of last resort if it considers that lending is required for the purpose of maintaining the soundness of the financial system.
Finally, the Bank has the responsibility of combating dysfunction in the foreign exchange market through the use of foreign exchange intervention as directed by the Minister of Finance under section 17 of the Act.
The financial system comprises financial institutions, financial markets, and the payment systems which provide the networks that enable transactions to occur. These institutions and processes underpin the functioning of any modern economy - through the role they play in facilitating the allocation of capital, the management of risks, and as well as the exchange of goods and services.
There are many potential events that could directly or indirectly impact the financial system in a way that could significantly damage or impede the soundness or efficiency of the financial system, in a way that:
- threatens the system's ability to perform its core functions to any significant extent;
- could significantly erode public confidence in the system; or
- significantly reduce the system's resilience.
Such events include: a bank financial failure, a technical failure of core payment and settlement systems or communication networks, an infrastructure failure such as a term power failure, or flow-on effects to the financial sector from a disaster, such as an earthquake or offshore events that impact the global financial markets.
In any of the above events, the Bank is charged to use its powers to maintain the soundness of the financial system by using its powers, which include:
- Acting as lender of last resort (section 31)
- Giving directions to banks (section 113)
- Recommending that a bank be placed under statutory management (section 117)
- Crisis foreign exchange intervention (section 17)
Business Continuity Planning
Business Continuity Planning (BCP) is the process of determining and implementing procedures to ensure that a business or an organisation is able to quickly recover and maintain essential functions from disruptions. A disruption may range from a localised issue (such as a computer outage) to a full scale disaster.
What is the Bank doing about it?
BCP is an ongoing priority for the Reserve Bank. As New Zealand's central bank, we need to ensure that we are as best prepared as we can to cope with disruptions and disasters - both to assist our people and to ensure that critical Bank functions can continue.
The Bank has an established BCP which has recently been reviewed and, as a result, is being further strengthened. The Bank tests its BCP preparedness on a regular basis with Bank staff required to work from its BCP sites.
In order to strengthen its BCP capability the Bank has established a BCP work programme.
The scope for the programme includes:
- Improved Civil Defence capability;
- Appropriate delegations to ensure continuation of the Bank's executive decision making ability;
- Improved provisions for dealing with local and regional disasters; and
- A robust infrastructure providing the necessary systems, interfaces and communication to support the Bank's critical functions.
What has been achieved?
- The Bank has improved BCP for the Bank's Payment & Settlement systems. A new telecommunications link from an alternative provider has been added to the core network to provide additional capability and redundancy. The system operations have been further automated to allow for easy switch between our primary and backup operational sites with no impact to end users.
- The Bank's computer room has been enhanced, with improved environmental controls, fire detection and suppression systems. A separate redundant communications facility has been established to provide independent access to the Bank's disaster recovery facility in Auckland. This provides continuity of systems access from within the Bank's Wellington building in the event of a computer room outage.
- A building outage is mitigated by the provision of a local Wellington based alternative operations centre. A current project underway involves the consolidation of a number of local operational sites into one centre that will cater for all staff required in a local disaster scenario.
- Bank staff awareness has been raised with the introduction of an internal newsletter on BCP and Health and Safety. All Reserve Bank staff have been provided a personal civil defence backpack, containing items that may be of use in a disaster.
- Centralisation of the emergency, civil defence and first aid training for staff.
- Review and restocking of civil defence cabinets.
- Increased the Bank's storage and access to water, as well as improved environmental controls.
What is still to be achieved?
- Further work is underway to improve the ability for staff to work remotely.
- The establishment of an out-of-region business operations centre is being considered.
- Departmental BCP are being further refined and tested.
Pandemic Planning
As part of the Reserve Bank's business continuity planning, the Bank is preparing for the possibility of an avian influenza pandemic. This planning is in line with wider government effort and is based on the Ministry of Health's pandemic scenarios.
The Reserve Bank is committed to maintaining core financial services during an avian influenza pandemic. As banking supervisor and overseer of the financial system, the Reserve Bank will be working closely with the banking industry and other key stakeholders, ensuring that we have robust procedures in place to ensure that our critical functions can continue to be undertaken during a pandemic.
Background information
The Ministry of Health's website (http://www.moh.govt.nz/pandemicinfluenza) has a comprehensive section on avian influenza pandemic planning.
The Ministry of Economic Development has recently issued a planning guide (available from http://www.med.govt.nz/irdev/econ_dev/pandemic-planning/) which contains useful background information to help businesses prepare to handle an avian influenza pandemic.
Reserve Bank Contingency Pandemic Planning (PDF 67KB)
The plan is a work in a progress and outlines the Bank's plans for a possible avian influenza pandemic.
Email sent to Reserve Bank staff
The email informs Bank staff of the planning currently under way to prepare for the possibility of an avian influenza pandemic.
Bank note inventory
This note outlines the Bank's reasoning to increase the Reserve Bank's contingency stock of notes. As the Reserve Bank is the sole supplier of bank notes we have a responsibility to ensure supply. This is normally straight-forward as demand for currency is reasonably predictable. However, at times of crises, history suggests that there may be a significant increase in demand from the public and businesses. Given the uncertainties at the present time around the avian flu and security it is considered prudent to increase our contingency stock of notes. This will be done progressively over the next few months.
Meeting with New Zealand registered banks on pandemic planning
Letter sent to New Zealand banks
The Reserve Bank invited New Zealand banks' CEOs to attend a meeting to discuss the preparations for the possibility of an avian influenza pandemic. The Bank is keen to understand banks' priorities, and the steps they are taking to ensure that critical functions will be maintained during a pandemic.
Powerpoint presentation for the meeting with banks (PDF 47KB)
The presentation was delivered by Deputy Governor Adrian Orr on 9 November 2005.
