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The Reserve Bank's new liquidity policy for banks

Author

Listed:
  • Kevin Hoskin
  • Ian Nield
  • Jeremy Richardson

    (Reserve Bank of New Zealand)

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.

Suggested Citation

  • Kevin Hoskin & Ian Nield & Jeremy Richardson, 2009. "The Reserve Bank's new liquidity policy for banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-18, December.
    • Handle: RePEc:nzb:nzbbul:dec2009:2
    as

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    File URL: http://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2009/2009dec72-4hoskinneildrichardson.pdf
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    References listed on IDEAS

    as
    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 1-6, December.
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    Cited by:

    1. František Brazdik & Michal Hlavacek & Aleš Marsal, 2012. "Survey of Research on Financial Sector Modeling within DSGE Models: What Central Banks Can Learn from It," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 62(3), pages 252-277, July.
    2. Robert A Buckle & Amy A Cruickshank, 2013. "The Requirements for Long-Run Fiscal Sustainability," Treasury Working Paper Series 13/20, New Zealand Treasury.
    3. Rebecca Williams, 2017. "Business cycle review: 2008 to present day," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 80, pages 1-22, March.
    4. Mr. Salim M. Darbar & Mr. Xiaoyong Wu, 2015. "Experiences with Macroprudential Policy—Five Case Studies," IMF Working Papers 2015/123, International Monetary Fund.
    5. Bevan Cook & Daan Steenkamp, 2018. "Funding cost pass-through to mortgage rates," Reserve Bank of New Zealand Analytical Notes series AN2018/02, Reserve Bank of New Zealand.
    6. Salim M. Darbar & Xiaoyong Wu, 2016. "Experiences with Macroprudential Policy — Five Case Studies," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-34, October.
    7. Andrew Kendall, 2016. "Developments in financial market liquidity," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 79, pages 1-16, April.
    8. Lydia Cheung & Jaqueson K. Galimberti & Philip Vermeulen, 2023. "Evidence on the Determinants and Variation of Idiosyncratic Risk in Housing Markets," Working Papers in Economics 23/13, University of Canterbury, Department of Economics and Finance.
    9. Felicity Barker, 2015. "The Reserve Bank's application of the Basel III capital requirements for banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 78, pages 1-19, May.
    10. Lauren Rosborough & Geordie Reid & Chris Hunt, 2015. "A primer on New Zealand's capital markets," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 78, pages 3-22, May.
    11. Jean-Pierre Andre, 2011. "Economic Imbalances: New Zealand's Structural Challenge," Treasury Working Paper Series 11/03, New Zealand Treasury.
    12. 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.

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