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A short history of prudential regulation and supervision at the Reserve Bank

Chris Hunt

This article provides a short history of prudential regulation and supervision at the Reserve Bank. The article identifies a number of distinct shifts in the prudential regime that mark specific periods in the Reserve Bank’s history. The narrative begins with the 1986 Amendment Act which established a prudential regime in New Zealand for the first time. This Act laid the foundations for a number of key features which have endured over time.

A regulatory framework has been developed over time to support both self and market discipline, with policies to encourage sound risk management and appropriate internal governance within regulated entities, as well as mandated public disclosure requirements. In addition, the Reserve Bank’s regulatory rules recognise the inherent limitations of self and market discipline by setting in place policies that make regulated entities internalise the costs they impose on the financial system and macro-economy. In particular, the global financial crisis (GFC) marks a watershed moment for regulators both globally and in New Zealand with the introduction of policies to make the financial system more resilient.