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The Reserve Bank's new liquidity policy for banks

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Author Info

  • Kevin Hoskin
  • Ian Nield
  • Jeremy Richardson

    (Reserve Bank of New Zealand)

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    Abstract

    A strong liquidity profile is important for all companies. This is particularly true for banks, given the maturity transformation role that is inherent to much of their business. The maintenance of a sound and efficient financial system requires banks to hold a liquidity profile that is robust to funding shocks. The New Zealand banking system is very concentrated, and unusually reliant on short-term offshore funding by comparison with other developed countries. This makes its institutions, and the system as a whole, particularly vulnerable to liquidity shocks. The Reserve Bank has been working to develop new prudential requirements designed to strengthen the liquidity of the New Zealand financial system. In this article, we explore the nature of liquidity risks inherent within the system and explain in detail the new requirements for registered banks. In doing so, we note that the new requirements come at a time when global regulators are looking to strengthen liquidity requirements in light of the recent financial crisis. The Reserve Bank considers that its new framework provides a solid foundation for enhancing liquidity in the New Zealand financial system, which can be further developed as necessary in the coming years.

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    File URL: http://www.rbnz.govt.nz/research_and_publications/reserve_bank_bulletin/2009/2009dec72_4hoskinneildrichardson.pdf
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    Bibliographic Info

    Article provided by Reserve Bank of New Zealand in its journal Reserve Bank of New Zealand Bulletin.

    Volume (Year): 72 (2009)
    Issue (Month): (December)
    Pages: 5-18

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    Handle: RePEc:nzb:nzbbul:dec2009:2

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Ian Nield, 2008. "Evolution of the Reserve Bank’s liquidity facilities," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, December.
    2. Ian Nield, 2006. "Changes to liquidity management regime," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 69, pages 6p, December.
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    Cited by:
    1. Geordie Reid, 2014. "Can’t see the wood for the trees – shedding light on Kauri bonds," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 77, pages 26-33, June.
    2. Jean-Pierre Andre, 2011. "Economic Imbalances: New Zealand's Structural Challenge," Treasury Working Paper Series 11/03, New Zealand Treasury.
    3. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.

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