3. CHRIS AUCHINVOLE (National—West Coast - Tasman) Link to this
to the Minister of Finance
What measures has the Government taken to ensure New Zealand’s financial system is better placed to minimise fallout from current global market volatility?
Hon BILL ENGLISH (Minister of Finance) Link to this
The Government has moved rapidly through a process of reregulating our financial system. This includes overhauling capital market regulations, establishing the Financial Markets Authority, and other regulations designed to give investors confidence in market rules and enforcement. We have also brought the non-bank deposit takers—that is, the finance companies—under Reserve Bank supervision, with minimum capital requirements and credit rating requirements.
What additional steps has the Reserve Bank taken to strengthen our financial institutions?
In anticipation of further financial volatility, the Reserve Bank has worked closely with financial institutions and introduced several new measures. For instance, it has introduced a new core funding requirement for banks that requires them to have 70 percent of their funding from stable sources such as domestic retail deposits and long-term wholesale funding. This requirement reduces banks’ dependence on volatile short-term money markets. The Reserve Bank has ensured that if there were another financial crisis, the Reserve Bank can supply temporary liquidity to sound banks, as it did in 2008.
What policies will the Government adopt in future to ensure that the New Zealand economy and financial system remain sound?
The Government will continue with its policy of rebalancing this economy away from a reliance on excessive debt and excessive Government spending and towards building our growth on investment, exports, and savings. This will allow interest rates to remain lower for longer, which will be a benefit to homeowners and businesses across New Zealand.
What spending restraint decisions has the Government taken since 2008 to reduce New Zealand’s vulnerability to global uncertainty?
The Government has been preparing for more difficult times, and those times seem to be arising. Over the last 2 or 3 years we have made considered and consistent decisions, including reprioritising $4 billion of spending in our first two Budgets and $5.2 billion of spending in 2011, with a strong focus on maintaining front-line services at the same time as reducing deficits. We are requiring the public sector to find almost $1 billion in savings over the next 3 years in order to reduce our deficit and get to surplus more quickly.