Feedback Sought On Liquidity Policy Review

The Reserve Bank of New Zealand – Te Pūtea Matua is seeking feedback on proposed changes to our liquidity policy for registered banks.

Liquidity is a measure of cash and other assets that can be sold quickly at a reliable price to pay bills and meet other financial obligations. Liquidity risk is the risk that a company will not be able to meet its financial obligations as they come due. If liquidity risk crystallizes, it can quickly lead to loss of confidence in a business and, in some cases, default or bankruptcy.

The objective of our liquidity policy is to strengthen financial stability by reducing the likelihood of liquidity problems affecting banks and improving their ability to manage these problems, said Deputy Governor and Chief Financial Stability Officer, Christian Hawkesby.

“While we believe that our existing liquidity policy remains broadly fit for purpose, it has not been fully reviewed since its implementation in 2010. Since then, an international liquidity framework has been developed and implemented at the stranger.

“There have been a number of important developments that argue for a policy review now, including our recent thematic liquidity review and liquidity stress tests, as well as the COVID-19 pandemic. “said Mr. Hawkesby.

Going forward, we plan to consider whether our liquidity policy should also apply to banks that operate in New Zealand as branches and, in due course, how it should apply to a broader set of deposit takers under the upcoming deposit takers law.

This is the first consultation document for the Liquidity Policy Review, which sets out the proposed issues and the scope of the review. It also contains the principles we propose to use to guide the review and our decision-making. We intend to release at least three more consultation papers as part of the review, with the entire review spanning approximately three years. The second and third consultation papers will solicit comments on a number of fundamental issues related to our liquidity policy, with a fourth consultation paper to contain the proposed final text of the liquidity policy. We welcome submissions on this first consultation until April 14, 2022.

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