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Delivering on Great and Best at Te Pūtea Matua

Adrian Orr

A speech delivered to the Law and Economics Association of New Zealand in Wellington

On 29 June 2020

By Adrian Orr, Governor of the Reserve Bank


Tēnā koutou katoa, welcome everyone.

It is a privilege to be here today in person rather than addressing you all through a laptop screen. The only drawback is that I’ve had to make my whole-self presentable rather than just donning a suitable shirt.

The past few months have been challenging for everyone, living under the dark cloud of the COVID-19 pandemic. The recent containment of the virus in New Zealand has come as a significant relief to us all. However, as we are all well aware, the virus containment remains fragile, and the economic and social challenges presented by COVID-19 are large and persistent.

Today I wish to outline how we have responded as New Zealand’s Central Bank to these recent events, but also outline what is ahead of us as we strive to live up to our vision of being ‘A Great Team and Best Central Bank’. See figure 1.

It is almost therapeutic to be able to talk enthusiastically about the future, rather than only dwell on the challenges of recent times. I recommend it to you all.

At Te Pūtea Matua, New Zealand’s Reserve Bank, we collectively act to promote the prosperity and well-being of all New Zealanders. We do this in large part through promoting a sound and dynamic monetary and financial system - a necessary platform for a sustainable and productive economy.1

Today we have published our Statement of Intent which outlines the Bank’s focus and strategic themes for the next three years.2 We take our commitments seriously and expect to be held accountable for delivering the outcomes.

We intend to epitomise a modern Central Bank. The Reserve Bank will operate transparently; be open to learning and adapting as necessary; work collectively and collaboratively; and be an active, relevant, cornerstone of New Zealand’s economy and society. Our vision of being a Great Team and Best Central Bank should describe our activities, our people, and the way we interact and engage with our stakeholders.

Figure 1: Our vision - Great Team, Best Central Bank

Source: RBNZ Statement of Intent 2020/21

Our Statement of Intent brings together many initiatives using the Māori legend of Tāne Mahuta.3 I thank again the northern hapu, Te Roroa, for their support of this initiative. Telling the story of Te Pūtea Matua in this manner highlights how diversity, inclusion, and collaboration are critical to reaching our potential - so as to best promote the economic well-being of all New Zealanders. See figure 2.

Figure 2: Te Pūtea Matua: Our Tāne Mahuta

Source: The Journey of Te Pūtea Matua: Our Tāne Mahuta

Last week we published our Funding Agreement4 for the next five-year period which was signed by the Minister of Finance, and which is yet to be ratified. Today we publish our Funding Proposal5 which underpins this agreement. I wish to thank the Minister for supporting the necessary uplift in our capability and capacity, so as to be both cost-effective and fit-for-purpose into the future.

Later in this speech I will outline some of the key activities we intend to deliver on. But first, I want to give a quick summary of what has happened over the past few months, and why this reinforces the importance of our intent.

Our response to the pandemic

In early- to mid-March the scale and economic implications of the COVID-19 pandemic became apparent as we observed an abrupt drop in economic activity globally. At the Reserve Bank we responded in a co-ordinated and transparent manner, despite the limited information available due to the pace and uniqueness of the shock.

Our actions, in tandem with the Government’s fiscal policy, aimed to initially cushion the economic blow by promoting cash flow and confidence in the financial system. To date our responses have included: a significant easing in the Official Cash Rate and the introduction of large scale asset purchases (Quantitative Easing); the provision of plentiful and cheap liquidity for the banking system; supporting the functioning of New Zealand’s debt markets; ensuring accessibility of cash; and facilitating a variety of Government and industry-led initiatives. See figure 3.

Figure 3: Mahi tahi: Working together to ensure cash-flow and confidence

Source: Mahi tahi: Working together to ensure cash-flow and confidence (PDF 318KB)

We have also worked closely with the finance sector and the banking industry in particular. I want to acknowledge the banking sector’s operational efforts to meet customer demands. This included introducing new Government and Reserve Bank supported schemes, working flexibly with customers, and maintaining business continuity while working largely remotely. This is a mammoth feat achieved in a short period of time.

We are all aware, however, that the COVID-19 health and economic risks are unfolding more akin to a marathon than a sprint. We all got off to a fast and coordinated start. Finding a sustainable pace - our tractor gear - is now the challenge. New Zealand’s financial service providers must sustain their long-term customer focus in the months and years ahead.

Banks in particular have a critical role to play. At the outset of the pandemic the New Zealand banking system had significant capital and liquidity buffers, built up due in large part to regulatory requirements and several years of favourable banking conditions. Figure 4 highlights our superior starting position in terms of bank soundness compared to the Global Financial Crisis (GFC).

Figure 4: Measures of banking system soundness

Source: RBNZ Capital Adequacy Survey, RBNZ LVR Positions Survey, RBNZ Liquidity Survey, registered banks' Disclosure Statements.

As the prudential regulator of New Zealand’s financial system, we require banks to hold conservative capital buffers specifically so that they can weather adverse economic events and deploy their capital in tougher times like now.6

We have recently made it clear that these capital buffers should now be used to support their customers’ long-term economic future. Our economic stress test analysis, recently discussed in our Financial Stability Report, helps illustrate how banks are able to continue to lend and prosper through a broad range of adverse scenarios.7 This is not the time for short-term self-interest, or misguided preservation, to lead to a credit crunch.

I am pleased we can report retail interest rates have declined in response to our commitment of keeping the OCR low as part of our COVID-19 response. Retail banks have also continued to make new loans, extend current ones, and work with customers on reconfiguring commitments as best they can. These efforts have been supported by the Reserve Bank and Government policies.

Such efforts should not come as a surprise. The banks’ activities mentioned so far remain in their best long-term interests. Maintaining the flow of credit to financially sound customers contributes to the long-term profitability of the banking sector, in particular by avoiding unnecessary defaults and disorderly corrections in asset markets.

As the prudential regulator, we have also made it clear to banking sector leaders that we will expect to see their capital buffers rebuilt in future, more ‘fair-weather’, years. Yes, these times will arrive. The banks’ capital rebuild will be contingent on conducive economic conditions, and we will work together to ensure this happens in a sustainable manner.8

So while New Zealand started this pandemic challenge in a good position – with a sound banking system, high employment, stable inflation, a strong terms of trade, and robust Government accounts – the COVID-19 crisis is far from over. It is premature to celebrate victory. At best perhaps we can afford a small dance to celebrate the ‘end of the beginning’ of this economic challenge.

We continue to reflect on our actions, and whether they are sufficient and having the desired effect. We are also reflecting on what we have learnt as a central bank, and as an organisation of diverse and resilient individuals. We swapped commutes and office culture for multi-tasking with family and work, shared tasks with equally busy partners or flatmates, and dealt with the usual challenges of technology. My favourite acronym learnt over this period was ‘PICNIC’ – problem in chair not in computer.

This shared experience has reinforced our drive to refine our mode of operation, and increase our people and technology capability and capacity. This is the core message of our Statement of Intent – ensuring a robust foundation that will promote and support a Great Team and Best Central Bank for years to come.

Refining how we are governed – institutional arrangements

Of course the COVID-19 pandemic is not the only catalyst for change, as we have outlined in past speeches.9 One significant catalyst for change is the ongoing review of our enabling legislation, which is now coming to fruition.

Over the past two years the Government has promoted a joint working group between the New Zealand Treasury and Reserve Bank officials to review and refresh the Reserve Bank Act.10 The work has been managed with considerable public consultation and the use of external expertise – both formally and on an ad hoc basis.

The motivation for this work is to ensure the Bank’s legislative framework remains robust, and is modern and fit-for-purpose for the years ahead. The implementation of the legislative change will occur in two steps – first the institutional arrangement for the Bank, and second the sectoral arrangement for who and how we prudentially regulate. Progress has been significant, with a new Institutional Act to be debated in Parliament in coming weeks.

As kaitiaki (caretaker) of the Reserve Bank, our task ahead will be to ensure there is a seamless transition to the new legislative framework. This is a significant challenge but I am confident our ongoing preparation will prove sufficient.

The governance changes being promoted are foundational. At the heart of the legislative change remains a dual emphasis of economic soundness - focusing on price stability and employment - and the financial stability of New Zealand’s financial system. However, there will be significant changes to the Bank’s operations across all areas of our mandate.

There are two areas I'd like to focus on:

First, the changes being introduced will establish a new Reserve Bank Board that will be accountable for all of the functions of the Reserve Bank except those undertaken by the Monetary Policy Committee (MPC). The Board, appointed by the Minister of Finance, will have all of the decision making powers outside of the MPC remit.11 The purpose is to reduce key person risks with all of the non-MPC decision making powers currently vested in the Governor.

The Minister of Finance will also appoint the Governor, but the Board will oversee the activities of the Governor and the Bank. There will, of course, be scope for delegation of the decision-making powers from the Board to Management, at the Board’s discretion.

Second, the changes aim to enhance the accountability of the Reserve Bank, through requiring greater legislative alignment to state sector reporting and monitoring practices. This is essentially about planning, delivery, measurement of our activity, and public reporting expectations.

As a result, the legislative reforms will alter the Bank’s constitution, legal structure, governance, and how it operates on a day-to-day basis. In practice, the Bank has increasingly operated to these requirements in preparation for transition.

Ongoing progress is also being made on the sectoral component of the Acts – legislating our purposes and powers for regulating insurers, banks, and other deposit takers. The review process is already underway and is the subject of current extensive public consultation.12

The changes proposed to this part of the Bank’s legislation will inform how we re-shape our approach to regulation – our regulatory scope and domain, level of supervision intensity and enforcement, failure resolution, and the possible addition of depositor protection.

The legislative changes will re-shape the Bank as we know it, so I encourage people to participate in the public consultation and provide your views.

Our Intent

The Reserve Bank has catch up to do on technology, capability, and capacity. We must be both cost-effective and fit-for-purpose for years to come. We are a full service central bank, covering issues from access to physical cash and our monetary policy responsibilities, through to the provision and maintenance of robust payment and settlement system, and prudential regulation promoting confidence and satisfaction in our banking and insurance system. Table 1 compares our activities with a range of other countries’ central banks and highlights our relatively unique breadth of activities.

Table 1: Central bank functions and responsibilities

Central bank functions and responsibilities key: Full, Shared or partial, None or minor.
Country Monetary policy Liquidity management FX intervention Lender of last resort Prudential policy Bank & insurance supervision
New Zealand Full Full Full Full Full Full
Australia Full Full Full Full Shared or partial None or minor
Japan Full Full Shared or partial Full Shared or partial Shared or partial
South Korea Full Full Shared or partial Full Shared or partial None or minor
Norway Full Full Full Full Shared or partial None or minor
United Kingdom Full Full Shared or partial Shared or partial Shared or partial Shared or partial
Eurozone Full Full Full Full Shared or partial Shared or partial
United States Full Full Shared or partial Full Shared or partial Shared or partial

Source: Adapted from Alridge and Wood (2014). Monetary policy decision-making and accountability structures: some cross-country comparisons. Reserve bank Bulletin, 77(1).

It is critical that we are adequately resourced to undertake this full range of activities to support financial stability and the wider financial system. Our new five-year Funding Agreement will provide much of this support and see the Bank’s net operating expenses increase while still paying the Crown a significant dividend from our revenue generating activities.

The increase in funding enables us to address critical risks we need to manage and/or mitigate when delivering on our mandate, and respond to areas of past underinvestment. Even then we will remain a relatively low-cost operation especially given our broader range of responsibilities than many other central banks (see Figure 5.)

Figure 5: Central bank and prudential regulator operating expenses/GDP 2018

Source: RBNZ Funding Proposal 2020-2025

The majority of our planned investment is on the expansion and enhancement of our core activities, particularly our supervisory and enforcement expertise, and our digital capacity and capability. We are also investing in our presence in Auckland, where the majority of financial institutions are now headquartered.

These changes are consistent with the recommendations in the IMF’s review of New Zealand’s financial system, and the expressed preferences of industry participants to increase our engagement capacity.

Updating our technology is a key strategic focus over the next few years. There is ongoing investment in cloud-based technology, including new systems of collecting, managing, and analysing data. We also need to offer a competitive proposition for current and potential staff, which enables flexible and efficient working ability.

Please do read our Statement of Intent for detail on our proposed investments. We use the imagery of Tāne Mahuta to outline our core efforts. This imagery anchors our Te Ao Māori strategy in how we plan and work. We want to embed cultural awareness so as to build a more diverse, inclusive and capable team.

In brief, some of the key activities we are advancing in coming years include:

  • Revamping our cash system – Following on from Te Moni Anamata, our future of cash project, we will look to redevelop our cash infrastructure and distribution model.13
  • FinTech - We will leverage the opportunities and manage the risks associated with ‘FinTech’ (financial technology). We are especially interested in improving financial inclusion, remittance payments, and economic efficiency.14
  • Data and Supervision – We will invest in our technology and software capabilities so as to make maximum use of all data and information collection – including regulatory relationships – and reduce our operating risks. We will also monitor the effectiveness of our regulatory relationships under the guidance of our Relationship Charter15 as outlined in the release of our first survey results.16
  • Climate Change – We will continue to manage our own direct impact on the climate, reflect climate risks within our core functions such as bank and insurance supervision, and contribute to wider international efforts to identify, monitor and manage climate risks.
    In particular, we will work collaboratively to best ensure New Zealand’s COVID-19 recovery activities are sustainable and ultimately contribute to New Zealand’s emission reduction and climate adaptation goals.17
  • Working with our South Pacific neighbours – Our main focus in the South Pacific will remain on improving access to, and lowering the cost of, remittance payments in the region. Working alongside our domestic and international colleagues, we will identify and invest in practical, structural, payment solutions.18
  • Regulator collaboration – We will advance our collaborative work with the New Zealand Council of Financial Regulators. The cross-agency focus will be on, amongst other things, climate change, financial hardship and inclusion, and FinTech issues – in addition to our regular information sharing and coordination.19
  • Diversity and inclusion – It will remain an imperative to broaden our workforce capability so as to best manage our stakeholder engagement and policy development. We will also ensure we are an attractive place to choose to work and develop a career.20


The global economy and society expectations continue to evolve and surprise. Even though our core purposes remain constant through time, the Reserve Bank of New Zealand must be able to adapt to change. This is whether change appears as a shock - such as the pandemic - or more evolves gradually - such as the implications of globalisation, technology, financial inclusion, and climate change.

Our commitments ahead are chosen to best ensure we are relevant, capable, resilient, and adaptable. We will operate transparently so that people can experience this change with us and assist on the way. Our aim is to provide the maximum long-term benefit to all New Zealanders.

You can continue to assist us by understanding what we do and why, and sharing your ideas and expertise directly. No one has a monopoly on good ideas, and we will need insight to deliver on our vision - Great Team, Best Central Bank.

Meitaki ma’ata

Tēnā koutou, tēnā koutou, tēnā koutou katoa