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Review of Liquidity Policy (BS13)

We are undertaking a comprehensive review of our liquidity policy (BS13), known as the Liquidity Policy Review (LPR).

Release of the second consultation paper's summary of submissions and key decisions

We have published a summary of submissions and key decisions document for the second phase (C2) of the Liquidity Policy Review (LPR).

C2 key decisions

Our key decisions on C2 are:

  • To retain and modify our policy's existing quantitative liquidity metrics (the Mismatch Ratio and Core Funding Ratio) rather than adopt the international Basel liquidity metrics (the Liquidity Coverage Ratio and Net Stable Funding Ratio).

  • To tighten the eligibility criteria for liquid assets under our policy and introduce two categories of liquid assets (Level 1 and Level 2).

    Level 1 liquid assets will include cash (notes and coins), Exchange Settlement Account System (ESAS) balances with the Reserve Bank, Reserve Bank bills, and New Zealand Government-issued securities (this includes Treasury bills, inflation-indexed bonds, nominal bonds, and green bonds).

    Level 2 liquid assets, subject to a cap on maximum holdings, will include Local Government Funding Agency (LGFA) securities and highly rated Kauri bonds.
     
  • Other assets currently classified as liquid assets under our liquidity policy and eligible for the Reserve Bank’s repurchase (repo) facilities will become eligible for a new Committed Liquidity Facility (CLF), which will be subject to a standing fee. 

There was also broad support for our proposal to introduce simplified liquidity metrics for smaller/simpler deposit takers, which we expect would include most or all non-bank deposit takers (NBDTs).

We expect to release the third consultation paper (C3) in Q2 (April to June) 2024. We intend to include C3 in our broader consultation on the core standards of the Deposit Takers Act. C3 will consult on proposed qualitative liquidity requirements, modified Mismatch Ratio and Core Funding Ratio metrics, more detailed quantitative liquidity requirements for smaller/simpler deposit takers, and our proposals for liquidity requirements for bank branches, if any. We also expect to seek views on potential high-level design features for the CLF.

The fourth consultation paper (C4), an exposure draft, will also be aligned with the core standards timeline.

About the Liquidity Policy Review

We are undertaking a comprehensive review of our liquidity policy (BS13), the Liquidity Policy Review. The objective of our liquidity policy is to strengthen financial stability by lowering the likelihood of liquidity problems affecting banks and improving their ability to manage such problems.

Although we believe our existing liquidity policy remains broadly fit for purpose, it has not been comprehensively reviewed since it was implemented in 2010. Since then, an international liquidity framework has been developed and implemented overseas. There have been several significant developments that support the case for reviewing the policy now, including our recent Liquidity Thematic Review and Liquidity Stress Tests, as well as the COVID-19 pandemic.

We welcome engagement with stakeholders throughout the review and invite any questions or comments on the review to [email protected].

Past consultation information

In February 2022 we launched our first consultation paper for the Liquidity Policy Review, which set out the proposed issues and scope for the review. It also contained the principles we proposed be used to guide the review and our decision-making.

Respondents to the consultation supported reviewing our liquidity policy now. They agreed that given the developments in international practice since our liquidity policy was introduced in 2010, and our recent Liquidity Thematic Review, now was a good time to review the policy to ensure that it remained fit for purpose.

Submitters also generally agreed with the proposed scoping of the review, but asked that we consider the broader prudential landscape, including implementation of the forthcoming Deposit Takers Act, and the potential implications this may have for our liquidity policy. Bank submitters also provided a list of areas of the current liquidity policy that they thought we should focus on.

In response to feedback received, we also amended one of our review principles, to ensure that one of the aims of the review is to promote and facilitate consistent interpretation and implementation of our revised liquidity policy.

We intend to issue at least 3 more consultation papers as part of the review, with the entire review spanning approximately 3 years. The second and third consultation papers will seek feedback on a number of fundamental issues related to our liquidity policy, with a fourth consultation paper expected to contain the proposed final liquidity policy text.

Related documents

Liquidity Policy Review - Summary of submissions and key decisions: Consultation paper #1 (PDF 809 KB)

Liquidity Policy Review - Full submissions: Consultation paper #1 (Issues and scoping) (PDF 3.3 MB)

Consultation paper: Review of Liquidity Policy (BS13) (PDF 863 KB)

The second stage of the review was published in February 2023 and contained proposals on some of the significant policy issues related to the review, including:

  • the eligibility criteria for liquid assets
  • the potential adoption of international standards, and
  • how liquidity requirements could be applied across deposit takers in a proportionate manner.

Feedback on the second stage consultation paper closed on 12 May 2023.