A new five-year funding agreement for the Reserve Bank will mean it can boost its work to protect New Zealanders’ finances, Finance Minister Grant Robertson says.
“New Zealand has a strong and stable financial system. Financial stability is an area that we are not prepared to cut corners for, particularly during the global recession created by the COVID-19 pandemic,” Grant Robertson said.
“This Government is committed to continued investment so New Zealanders can maintain confidence in their banks and financial institutions, through increased supervision and greater enforcement capability to deter and deal with bad behaviour.”
The Reserve Bank funds itself with revenue from its own operations, meaning the funding agreement does not require money from the Government’s Budget. Its five-yearly budget requires agreement between the Finance Minister and the Reserve Bank Governor. The new agreement has been signed by both the Minister and Governor, and will be ratified by Parliament on Tuesday 30 June.
The new agreement provides the Bank with an annual average of $115 million a year for its operations over the next five years, with a further average of $13 million a year for the issuance of currency. The 2019/20 budget total was $80 million.
Grant Robertson said the increase recognises that the number of full time employees at the Bank is expected to increase from 296 in 2018/19 to 468 by 2024/25, and that investment in new technology is required as it takes on new work to keep New Zealanders’ finances safe.
This funding will support greater supervision of banks and other financial institutions following the Government’s work to review and modernise the Reserve Bank Act. The International Monetary Fund’s 2017 Financial Sector Assessment Programme Review also recommended that the Bank substantially increase its financial supervisory capability.
The Bank typically pays a dividend to the Government each year when revenues are greater than its expenses.
“While the new funding agreement will mean the Bank retains more of its revenue before paying a dividend to the Government, this is critical to make sure the Bank can keep New Zealand’s financial system strong and secure,” Grant Robertson said.
Note to editors:
The Reserve Bank is funded through revenues from returns on the Bank’s investments, the issuing of currency, deposits (held by banks and the Crown) and equity (held by Government).
The Reserve Bank does not receive appropriations through the central government budgetary process to cover operating expenses. Instead, the Minister of Finance and the Governor enter into a five-year funding agreement to specify the amount of the Bank’s revenue that is retained to meet net operating expenses each financial year. The Bank’s revenues typically exceed its expenses, with any excess revenue paid back to the Crown through an annual dividend, after allowing for the Bank’s capital requirements.