Bollard makes handling bank failures a priority

The Reserve Bank is making protection of New Zealand's $41 billion-a-day payments system its leading priority, says Governor Alan Bollard.

The strength of the payments system was "probably going to be our main pre-occupation in future", he said in a speech to the Institute of Finance Professionals yesterday in Auckland.

Bollard said the bank was concerned about two factors.

The first was operational failures and fraud in the networks and other systems by which payments were conducted.

The second was the need to keep a failed bank functioning in the short term.

Operational failures in individual banks had the potential to spill over to affect other participants, he said.

Bollard said that in the event of a bank failure, the central bank might need to step in and keep the stricken bank as a full participant in the payment system to avoid wider damage.

"We also need to be able to act quickly in respect of transactions that are in the various pipelines, at the point where a statutory management is declared.

"To do this, we potentially need fast access to New Zealand management, technological and payment system resources."

Bollard said the banking system's increased dependence on technology implied the risks in that area had also increased.

"[They] probably now pose the greatest potential systemic threat to the payment system."