New legislation provides a strong basis for confidence
The passing of the Reserve Bank Amendment Bill (No 3), making the
Reserve Bank the regulator of deposit takers, provides a strong basis
for confidence in the non-bank deposit-taking sector, Reserve Bank
Governor, Alan Bollard, said today.
Speaking to an Auckland business audience, Dr Bollard said there has
been over the last year or so a 'slow-burn' contagion of finance company
failures.
"A number of factors have contributed to the casualties," he said.
"There has been a downturn in the property development sector.
Investors have been exposed to significant risks in exchange for a
relatively small margin over bank deposit rates. People have shifted
their money from finance companies to institutions with a lower degree
of risk, notably the banks. And then there has been the international
credit crisis."
Dr Bollard said that the failures have also highlighted fragile business
structure, poor risk management, and inadequate governance. The passing
of the Reserve Bank Amendment Act, making the Reserve Bank the regulator
of non-bank deposit takers, will help to address these issues in the
future.
"The major players in the financial systems are, of course, the
commercial banks, and despite the crisis on Wall Street, they have
continued to operate strongly in New Zealand. These institutions are
well capitalised businesses and give no current reason for concern,"
commented Dr Bollard.
Under the new legislation trustees will continue to be front-line
supervisors of deposit takers. The Reserve Bank's role will be to
require information from trustees of deposit takers, to develop and
enforce minimum prudential and governance requirements, and to
administer credit rating requirements.
Credit ratings from reputable rating agencies will play an important
role. Credit ratings will assist depositors to compare the level of
risk they are taking with the return they are getting when they invest
in a deposit taker.