Statement of supervisory approach
The purposes for which the Reserve Bank regulates and/or supervises regulated entities are set out in the empowering Acts. In relation to all regulated entities, the Reserve Bank carries out its functions for the purpose of promoting the maintenance of a sound and efficient financial system.
For banks and non-bank deposit takers the purpose of the Reserve Bank's functions is also to avoid the significant damage to the financial system that could result from the failure of regulated institutions.
For insurers, Reserve Bank regulation and supervision has the further purpose of promoting public confidence in the insurance sector.
In giving effect to these purposes, the Reserve Bank's supervisory approach:
- supports market participants' ability to make informed choices about risk;
- supports a competitive and diverse financial system;
- encourages sound management of institutions by directors and managers;
- maintains clear minimum prudential standards for financial institutions;
- does not seek to eliminate risk, but provides for risk levels to be well-signalled and for the risk of high-impact failures to be acceptably low; and
- in the event of major problems, seeks to minimise the impact of the problems on the wider economy, the financial system and on depositors/policyholders.
We always harness and enhance market disciplines where possible. Where this is not sufficient, we will use tools that directly constrain market choices.
We develop and maintain a good working knowledge of the institutions we are supervising and of the sorts of risks they are assuming.
We collaborate closely with the Australian authorities in respect of the supervision of entities engaged actively on both sides of the Tasman.
The key elements of our approach are therefore:
- financial and non-financial disclosure standards;
- minimum financial requirements in selected areas, including capital;
- rules around corporate governance, corporate structure and risk management;
- regular engagement with directors and senior managers of institutions with a potentially high impact on financial system stability;
- close relations with relevant home authorities, especially in Australia; and
- an analytical and systematic approach to assessing risk in supervised financial institutions.