RBNZ signs MOU on use of macro-prudential tools
The Minister of Finance, Hon Bill English, and Reserve Bank Governor, Graeme Wheeler, have signed a Memorandum of Understanding on Macro-Prudential Policy, as announced today in the Government's Budget Statement.
Mr Wheeler said that the MOU provides governance arrangements for the use of macro-prudential tools that are designed to promote greater financial system stability.
"Under the MOU, the Reserve Bank would consult the Minister of Finance ahead of the bank making any macro-prudential policy decision. However, final policy decisions would be made independently by the Reserve Bank," Mr Wheeler said.
This follows public consultation by the Bank on four macro-prudential tools that would:
- build additional resilience in the financial system during periods of rapid credit growth and rising leverage or abundant liquidity; and
- dampen excessive growth in credit and asset prices.
"These new tools could be used from time to time to help avoid extremes in credit and asset price cycles. They can promote financial stability by helping to build capital buffers and reduce incentives for speculative behaviour, which can contribute to boom-bust cycles in credit and asset prices," Mr Wheeler said.
The four new tools agreed under the memorandum include:
- Adjustments to the Core Funding Ratio
- A Countercyclical Capital Buffer
- Adjustments to sectoral capital requirements
- Quantitative restrictions on the share of high loan-to-value ratio (LVR) loans to the residential property sector.
Mr Wheeler said work will now focus on ensuring the new tools can be implemented by registered banks, which account for most lending to New Zealand households and businesses.
"Over the next two months, we will be consulting further with the banks to establish the implementation details of the various instruments so that we are able to use them as necessary."
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