Policy on access to Exchange Settlement Accounts
Section 32 of the Reserve Bank Act 1989 allows the Reserve Bank of New Zealand to provide settlement account services for financial institutions.
ES accounts are basic current accounts. An accountholder has the ability to conduct settlements with other accountholders in central bank funds enabling the receiver of those funds to have absolute faith in the quality of the funds received. However,
- no credit is provided; the account must be in funds at all times.
- The Reserve Bank calculates interest for each account holder on a daily basis. Account holders receive the official cash rate on balances up to a maximum balance that is determined by the Reserve Bank. Balances in excess of this amount are remunerated at the official cash rate less 100 basis points. The Bank may from time to time vary these arrangements.
- there is no right of access to lender of last resort (LLR) facilities.
- there is no right of access to intra-day or inter-day liquidity. Access to intra and inter-day liquidity is a separate decision based on the creditworthiness criteria used to determine acceptable domestic counterparties.
- no other rights or status are conferred.
It should also be noted that access to an ES account is a completely separate issue to access to any payments switch. Access to a switch is a matter for the proprietors of each switch to determine.
Competition policy is primarily the responsibility of the Commerce Commission.
2. Matters for Consideration
The goal of the Bank's settlement account policies is to promote the development of a payments system which is efficient, open and flexible; which has a high level of integrity; and which is robust in the face of financial crises.
We also see our role in the provision of exchange settlement (ES) accounts as analogous to a "wholesale" as distinct from a "retail" activity. We do not anticipate there will be many applications for an ES account, given the very limited features of an ES account.
When deciding on an application for an ES account the Bank will consider the following matters:
- whether the applicant fits the definition of financial institution in the Reserve Bank Act 1989.
- whether provision of an ES account to the applicant might detract from the soundness of the financial system.
- whether provision of an ES account to the applicant might detract from the efficiency of the financial system.
- whether there is a legitimate business interest that can be served by access to an ES account.
- whether the provision of an ES account would adversely affect the reputation of the Reserve Bank.
- any other matters the Bank considers relevant to the application.
Applicants for an ES account will be expected to address each of the above matters in their application.
3. Account Terms and Conditions
Any new ES accountholders would be subject to the same contractual terms and conditions as existing accountholders. This is as agreed and provided for in the existing terms and conditions. Applicant's attention is particularly drawn to the provisions of clause 2.5 of the Account Terms and Conditions.