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Reserve Bank Amendment Act

News Release
Reserve Bank Amendment Act
14 8 03

The third reading of the Reserve Bank of New Zealand Amendment Bill this afternoon means that the Reserve Bank's governance and financial system oversight arrangements are to change slightly.

The key governance change is that the Governor no longer chairs the Bank's Board of Directors, the chair being a non-executive director appointed by the non-executive directors. The reason for this change is that the previous arrangement created a potential conflict of interest, in that the Governor chaired the committee assessing his own performance, as noted in the monetary policy review conducted in 2001 by Professor Lars Svensson.

In addition, the Bank's Deputy Governor ceases to be a Board member, although the Governor remains a member. The Board is required to issue an annual report assessing the Governor's and Bank's performance, as it has done in recent years.

The legislation, however, does not change the role of the Board of Directors and does not affect the role of the Governor in managing the Bank. The Board does not have executive authority over the Bank, its primary task being to monitor the performance of the Governor and the Bank on behalf of the Minister of Finance. The Governor continues to be responsible for all Bank decisions, including setting monetary policy.

Some technical changes are also made to the Bank's powers in relation to its financial stability role. Among these are enhanced restrictions on the use of the word "bank" and its derivatives, aimed at ensuring that non-bank financial institutions are not able to pass themselves off as registered banks and so mislead the public. There are a number of changes to bank registration and supervision requirements, including, for example, consent to significant ownership change.

The legislation also gives the Bank formal responsibility for overseeing the payment system and provides for finality of payments settled through designated payment systems.

A more detailed description of the amending legislation can be viewed on the Reserve Bank's website at www.rbnz.govt.nz.


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