The International Monetary Fund (IMF) has declared New Zealand’s banking system to be resilient, but nevertheless recommended ways to improve the strength of the country’s financial sector and the regulatory framework.
In releasing the findings from its Financial Sector Assessment Programme (FSAP) overnight, the IMF said that the banking system is 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 states that New Zealand has a good institutional framework for macroprudential policy and that LVR restrictions have generated financial stability benefits, although it could be strengthened further. They also recognise a number of important positive features about the Reserve Bank’s supervisory framework, including the strong Trans-Tasman relationships.
Recommendations for improvements include increasing the intensity of supervision for both the banking and insurance sectors, within the Reserve Bank’s “three-pillar” approach to prudential regulation that is based on self, market and regulatory discipline.
The IMF has endorsed the Reserve Bank’s current legislative proposal to improve the regulation and oversight of financial market infrastructures, as well as the importance of reviewing the bank capital framework.
The Reserve Bank is considering the FSAP findings and recommendations in its areas of responsibility and the degree to which these might further its statutory purpose of promoting a sound and efficient financial system.
A forthcoming article in the Reserve Bank Bulletin will explain the 2016 FSAP process and its findings and recommendations in more detail.
External Communications Adviser
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