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AA rated Kauri securities in RBNZ market operations - 16 December 2011

The Reserve Bank announced today that it will accept AA rated Kauri securities in its market operations.

Action by rating agencies in the recent past to adjust their frameworks and downgrade certain sovereigns from "AAA" to lower ratings has systemic consequences for the Kauri securities market. The consequences are both in terms of acceptability in the Reserve Bank's domestic market operations and for commercial banks' liquidity calculations under the prudential liquidity policy (BS13).

The Reserve Bank has decided to clarify how such securities will be treated if downgrades occur.  For domestic market operations:

  • when two rating agencies rate the security at AA- or higher, the security will be eligible as collateral; and
  • the security will be allocated a haircut from its lowest applicable security rating.

The Reserve Bank will update its haircut schedule as appropriate.

In parallel with these decisions for its domestic market operations, the Reserve Bank has commenced a consultation process to change BS13 regarding the treatment of Kauri securities. Such a consultation is required for changes to conditions of registration.

For further operational details contact:

Te Okeroa
Manager, Market Operations
[email protected]