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Letter sent to New Zealand banks on pandemic planning

27 October 2005

Dear CEO

PANDEMIC PLANNING

As you know, governments and businesses around the world are working to prepare plans to cope with a possible influenza pandemic. The Reserve Bank is working as an integral part of the New Zealand Government's effort to prepare for such a pandemic. Let me stress right now my personal commitment to ensuring that this issue receives high priority attention.

In New Zealand, the Government's efforts are being led by the Ministry of Health. They advise that businesses should plan allowing for the possibility that a third to a half of staff could be absent from work for extended periods, spanning successive waves of the influenza, covering a period of multiple months.

The Ministry of Economic Development has recently issued a planning guide (available on www.med.govt.nz/irdev/econ_dev/pandemic-planning/) which contains useful background information to help businesses prepare to handle a pandemic, when and if it occurs. I commend this document to your attention.

Maintaining core financial services, as far as possible, during a pandemic period should be a priority for us all. The Reserve Bank is committed to ensuring that we have robust procedures in place to ensure that our critical functions can continue to be undertaken during an extended pandemic period. However, it is your business, and those of your peers and competitors, which make up the bulk of the financial system, and so your preparedness will also be vital.

I am keen to work with the industry as a whole on this issue, and especially where there are key interfaces between banks' own operations and our own. Amongst others, these include:

  • Currency distribution
  • Provision of payment and settlement services (ESAS and Austraclear)
  • Provision of liquidity to the financial system
  • Coordinating our industry-wide communication and ensuring adequate comprehension of our business continuity plans.

Accordingly, I have invited the chair of the New Zealand Bankers' Association to convene a meeting of me and the NZBA Council, to be held before the end of November. At this meeting I wish to discuss the issue and to help ensure strong chief executive ownership of our efforts in preparing for the possibility of a pandemic. I have asked for non-NZBA banks to be invited to this meeting also.

Beyond that initial meeting of chief executives, I am keen to see several short-term working groups established, involving representatives from the Reserve Bank and from the banking industry. The working groups would be in the three key areas outlined above (currency, payments and settlements, and liquidity). The objectives of the working groups would be to clarify understandings and expectations in the event that a pandemic strikes, to facilitate preparedness, and to ensure that appropriate lines of communication are well-documented and tested. I expect banks that are active participants and/or members of the core payments system to be represented at an appropriate level on each of these working groups.

I would hope that these groups would be able to make substantial progress before Christmas.

Beyond the industry-wide approach, we will also be initiating discussions with each bank. As banking supervisor and overseer of the financial system, the Bank is keen to understand each bank's own sense of what are the priority areas of business that it would seek to maintain through a pandemic period, and to understand the steps you are taking to ensure that those functions will be able to be maintained.

We are interested to hear any preliminary thoughts you might have on how you might handle loans that become non-performing during the pandemic period, and what facilities you perceive as critical e.g., maintaining transactions services, providing access to basic lending services, and executing payment and settlement facilities.

In order to commence this dialogue, it would be useful if you could please inform the Reserve Bank of the relevant contact person within your bank. Please notify Peter Brady, Manager of the Surveillance team, of the relevant contact details.

I look forward to working with you, and with the banking industry as a whole, to help ensure that we are as well-positioned as possible should a flu pandemic reach New Zealand.

Yours sincerely

Dr A E Bollard
Governor

cc Alan Yates
Chief Executive, New Zealand Bankers Association