27 September 2000
Review of policy on local incorporation of banks
The Reserve Bank today announced its intention to seek regulatory changes that would require some overseas banks that do business in New Zealand to establish locally incorporated subsidiaries instead of operating here as branches.
Under the revised policy, banks in the following categories will be required to establish a locally incorporated subsidiary for their New Zealand operations:
- Systemically important banks - that is, banks large enough to materially affect the operation of the financial sector as a whole.
- Banks that take a significant level of retail deposits and come from countries with legislation giving home country depositors a preferential claim in a winding up. Currently both the United States and Australia have such legislation.
- Banks that take a significant level of retail deposits and which, in their home countries fail to publish the full information depositors would need to assess financial soundness.
Banks that do not fall into one of those categories can continue to choose whether they operate a branch or a subsidiary in New Zealand.
The new policy is intended to help the Reserve Bank manage a crisis affecting a systemically important bank. In a bank crisis the Bank can appoint a statutory manager. However, with a branch distinguishing the New Zealand business from other parts of the operation may be difficult. With a locally incorporated company it is clear which assets relate to the New Zealand business. This makes it easier to get a bank up and running quickly, minimising adverse effects on the financial sector and the economy.
The new policy will also help ensure that retail depositors can get the information they need to assess the risk of dealing with a particular bank, as locally incorporated banks are required to publish accounts and other prudential information on a quarterly basis.
Also, local incorporation means that legislation in a bank's home country giving preference to depositors in that country would not apply here in the event of a failure.
Draft regulations to implement this policy are currently being circulated for comment. The new policy and a copy of the draft regulations are available on the Reserve Bank's website at www.rbnz.govt.nz
For further information contact:
Lisa Weekes
Communications Officer
Phone 04 471 3767, pager 026 103 787
Email weekesl@rbnz.govt.nz
