KEY POINTS:
New Zealand banks scooped up half a billion dollars in "backup" funding the Reserve Bank offered yesterday as part of its response to the international credit crisis.
However, the RBNZ says the banks' use of its facility should not be cause for alarm and New Zealand's financial system
continues to cope well with the credit crunch.
The RBNZ yesterday published its second report for the year on the health of the financial system. It acknowledged the recent "extreme disorder in the financial markets" but said New Zealand's financial and payments systems had been holding up well.
"The final impact of financial and economic disruption is, however, far from over but we do believe that New Zealand's banks and the Australian parents of the majors are well positioned to withstand the economic downturn," said Governor Alan Bollard. None of the Australian owned major banks here had experienced significant losses so far and the RBNZ believed they all had "sufficient capital buffers to withstand the inevitable upcoming loan losses that some of them will suffer during an economic downturn".
However, market conditions had affected the cost and accessibility of offshore funding which New Zealand's banks and industry relied on heavily.
The Government last month introduced a wholesale funding guarantee scheme which should help local banks tap offshore markets when they begin functioning more normally again.
It has also broadened the range of assets it will accept from banks as collateral on loans to them. As announced at the last Financial Stability Report six months ago, the RBNZ will now accept high-quality residential mortgage backed securities (RMBS) as collateral on longer term loans.
Deputy Governor and head of financial stability Grant Spencer said all major banks were "experiencing a degree of stress in terms of access to international funding markets" and the speed at which those markets began working again would determine whether banks would need to avail themselves of the RMBS facility.
However, it appears banks probably did use the facility - literally within a few minutes of Spencer's comments.
The RBNZ held its first Term Auction Facility (TAF) yesterday morning, by which it will offer up to $2 billion in funding to banks for terms of between three months and a year. RMBS are among the securities it will accept as collateral on TAF loans.
Data published on the Reserve Bank's website yesterday afternoon showed it offered $500 million in funding, all of which was taken up, including $300 million in 12-month money.
The RBNZ does not disclose which institutions took up the funding or the exact type of collateral tendered.
Bollard said any take up of the facility using RMBS as collateral should not be viewed as a sign of particular stress.
"You can't draw specific implications about particular institutions because it all depends on the particular details of their balance sheet. The ones who may be in there first may simply have got their securitisation in place first.
"They all have these structures in place and we're expecting all of them to use this facility to some extent over the coming period."
