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The Financial Policy Remit and the Reserve Bank

An article from the November 2022 Financial Stability Report.

On 1 July 2022 the new Reserve Bank Act came into force. Among other changes, the new Act reconstituted the Reserve Bank Board and gave it overall responsibility for our strategic direction, functions, and operations, and ultimate accountability for the delivery of our outcomes. Among the collective duties of the Board, it is required to take account of the Financial Policy Remit.

The remit is issued by the Minister of Finance and specifies matters the Government considers the Reserve Bank should have regard to in achieving its financial stability objective and performing its functions as a prudential regulator and supervisor. The remit is the counterpart to the Monetary Policy Remit, through which the Minister of Finance issues the Monetary Policy Committee with operational objectives and other considerations to have regard to for monetary policy.

What does the remit cover?

The current remit outlines the Government’s desired outcomes of a strong, efficient, and inclusive financial system, with a low incidence of failure of entities regulated by the Reserve Bank. Within an appetite of a low incidence of failure, a competitive financial system is encouraged, to ensure ongoing financial efficiency and inclusion.

The Government considers the Reserve Bank should have regard to:

  • the costs imposed by regulation and that they are proportionate to their risks and benefits;
  • encouraging new investment and innovation that raise the economy’s productive potential; and
  • encouraging financial resources to be allocated in a way that maximises sustainable long-term economic growth.

The Government also considers it desirable for the Reserve Bank to have regard to the Government’s wider policy objectives in relation to:

  • sustainable house prices;
  • building resilience and
  • facilitating adaption to climate change;
  • improving financial inclusion; and
  • improving cyber resilience.

How does the Reserve Bank have regard to the remit?

With the new Reserve Bank Board now in place, we take into account the remit in four key ways.

  • When setting our strategic intentions, we consider the remit in developing the priorities outlined in our Statement of Intent.
  • In reviewing, developing, and implementing prudential policy, we consider the remit through the analysis of our policy proposals on the factors noted in the remit.
  • In performing our supervisory functions, the remit is taken into account when considering the burden imposed by specific actions.
  • And finally, in monitoring our performance, we report on how our activities may have affected the factors identified in the remit.