Open Bank Resolution impact assessment released
Date 1 November 2012
OBR is a long-standing Reserve Bank policy aimed at allowing a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than the taxpayer.
The release of the Regulatory Impact Assessment follows an earlier consultation with banks on internal system changes required for OBR pre-positioning.
The Reserve Bank is also releasing a summary of submissions (PDF 137KB) received on the pre-positioning for OBR and a document that maps the OBR policy against the principles for effective resolution of a distressed bank, as set out by international agency the Financial Stability Board.
Reserve Bank Deputy Governor Grant Spencer said: “Bank failures in New Zealand are rare and the financial system remains sound. The OBR policy will offer government a very real alternative to bailout in the event of a bank failure in New Zealand. The availability of OBR as an option is expected to reduce moral hazard, strengthening incentives for banks to operate prudently and to seek private sector solutions during a crisis,” he said.
It follows the Government confirming last year that it was considering a number of permanent options, including Open Bank Resolution, to manage any future financial market difficulties and maintain confidence in the financial system.
“The Regulatory Impact Assessment estimates that the net benefits of having OBR available in the resolution toolkit are worth more than $1 billion.”
Mr Spencer said the OBR policy approach being taken by the Reserve Bank is consistent with global regulatory developments in this area and cements lessons gained from around the world during the global financial crisis.
All locally incorporated banks that have retail deposits of over $1 billion will be required to pre-position their systems to meet the OBR requirements by the end of June 2013.