2018 Annual Report
First, a personal note from us all at the Reserve Bank. We fondly remember Roger Perry, a colleague and friend who passed away this year. Roger’s bright, enthusiastic and energetic approach to life will be celebrated, in part, with a Bank scholarship in his name for like-minded students. Our thoughts remain with his family.
I would also like to thank Graeme Wheeler for ensuring that the Bank was in great stead and with significant projects on the go when I arrived. Likewise my thanks to Grant Spencer, who played a pivotal role in this success as Deputy and Acting Governor before my tenure commenced.
The Bank is undergoing significant innovation and change in all it does, a process started well before my appointment as Governor. The ongoing Review of the Reserve Bank Act, and more recent performance and relationship management initiatives, will ensure that there is no ‘business as usual’ for us for some time to come. It is an exciting and challenging time for the team, who are responding with great willingness, integrity and inclusion.
Our recent priorities have included changes to our currency operations model, our digital capability, both internally and with our payment systems, our relationship management and focus on our prudential responsibilities, and our monetary policy targets and decision-making structures. No stone is being left unturned by these multi-year initiatives.
The new PTA that I signed on 26 March with the Minister of Finance widened our monetary policy objectives to include both maintaining price stability and contributing to supporting maximum sustainable employment. The legislation currently before Parliament also proposes to give monetary policy decision-making to the Monetary Policy Committee — a group I will chair that will include Reserve Bank staff and external expert members. The Reserve Bank’s Board will also have a greater involvement in appointing and assessing the decision-makers, both individually and as a group. These changes highlight that low inflation is a means to an end — improving economic wellbeing — not an end in itself. The aim of the proposed decision-making structure is to embed diversity of thinking and transparency into the Bank for the future.
I am proud that my colleagues did not just sit awaiting instructions. They moved quickly to understand the impacts and limitations of monetary policy in contributing to maximum sustainable employment, and the knowledge gaps we have for future work. Extensive work has also occurred, alongside our Treasury colleagues, in putting in place the infrastructure for a decision-making committee that includes external members. The review of the Reserve Bank Act is ongoing with regard to our role in promoting financial stability and efficiency. The review is wide ranging and being co-led by the Bank and the Treasury, an excellent example of coordination. We want to ensure that there is a broad-based understanding of the benefits that our policies deliver, and ensure legitimacy around our choice of policy tools and their use.
The anticipation of change has already invigorated our people, as this Annual Report illustrates. In May 2018 we publicly launched a world-leading Bank Financial Strength Dashboard, designed to explain in a timely manner banks’ prudential risks. This web tool will contribute to financial literacy and prudent financial decisions. We are also well underway on several initiatives to ensure that our banks are sound. These include a reassessment of the level of capital that banks should hold to be resilient; stress testing their balance sheets; and strengthening the ability of systemically important banks to be stand-alone capable if their parent banks hit trouble. We also worked with our Australian equivalents to test our trans-Tasman crisis readiness.
In order to underline the importance of directors’ responsibilities, we also reviewed the bank directors’ attestation regime — in part leading to ongoing work underway relating to banks’ culture and governance frameworks. Separately, bank conduct and culture came under the spotlight for the wrong reasons during the Australian Royal Commission’s inquiry into misconduct. As a result, we worked closely with the Financial Markets Authority on our own Review of Culture and Conduct. We will report more on this shortly.
We have also been criticised in recent times. The IMF’s review in late 2016, while positive overall, identified shortfalls in our resources dedicated to reviewing banks’ attestations and behaviours. In lieu of future resources, we have partially closed this gap with thematic reviews. The first review looked at the effectiveness of bank director attestations. Our second review relates to bank conduct. In undertaking these thematic reviews, I have been pleased with the engagement of the banks, other New Zealand regulators such as the Financial Markets Authority and the Council of Financial Regulators, and the Australian Prudential Regulation Authority.
We have also been challenged with CBL Insurance Limited — a New Zealand registered insurance company — that we placed into interim liquidation to mitigate risks to the insurance sector. This is an ongoing demand on our resources as we move through the court processes. Likewise, we are managing challenging implementation efforts with our internal banking systems as we upgrade and improve them, both in terms of our real-time settlement systems and our internal investment tools.
Furthermore, stakeholders are demanding more from us and we are responding. A key focus since being in the seat has been to acknowledge that our internal and external relationships must improve, and our service levels and performance benchmarked. As a result we have developed a new vision for the Bank: we want to be A Great Team, Best Central Bank. All of the future activities outlined in our latest Statement of Intent work towards this goal. We must be an institution that New Zealanders are proud of and trust. To achieve this we’re now focusing on building our capabilities, resources and diversity, and operating as a great team. We also need to better manage our relationships and communication — say it simply and be open. The team is up for the challenge and work is underway. I am privileged and proud to be leading such a dedicated team and important institution.
13 September 2018