About the FSAP review
The International Monetary Fund (IMF) undertook a FSAP for New Zealand in 2016.
FSAP is a comprehensive review of a country’s financial system, with a particular focus on the quality of financial sector regulation. The previous New Zealand FSAP was conducted in 2003 and 2004.
The 2016 New Zealand FSAP included a review of our set of financial sector responsibilities, as well as an assessment of changes in New Zealand’s approach to securities and market conduct regulation.
What the review found
The IMF released its main report, the Financial System Stability Assessment (FSSA), in April 2017.
In May 2017, the IMF released a series of other reports and technical notes covering its findings and recommendations in more detail.
In its FSSA, the IMF declared New Zealand’s banking system to be resilient but recommended ways to improve the strength of the country’s financial sector and the regulatory framework.
The New Zealand banking system was well-placed to manage risks and vulnerabilities associated with current developments in the housing sector, the high level of household debt and low dairy prices. The FSAP included a range of ‘stress tests’ of the large New Zealand banks.
The report said New Zealand has a good institutional framework for macroprudential policy and that loan to value (LVR) restrictions had generated financial stability benefits, although it could be strengthened further. It also recognised a number of important positive features about our supervisory framework, including the strong trans-Tasman relationships.
Recommendations for improvements included increasing the intensity of supervision for both the banking and insurance sectors, within our ‘three-pillar’ approach to prudential regulation that is based on self, market and regulatory discipline.
The IMF endorsed our current (2016) legislative proposal to improve the regulation and oversight of financial market infrastructures, as well as the importance of reviewing the bank capital framework.
Our response to the IMF review
We have been considering the FSAP findings and recommendations in our areas of responsibility and how these might further our statutory purpose of promoting a sound and efficient financial system.
Many of the FSAP recommendations underpin our policy development, including the development of improved legislation for regulating and supervising banks, non-bank deposit takers, financial market infrastructures and insurers.