KEY POINTS:
Ensuring the banking sector has sufficient ready cash to function during what is likely to be an extended bout of financial turbulence will be a major focus for the Reserve Bank over the next three years, Governor Alan Bollard says.
In the RBNZ's annual Statement of Intent issued yesterday Bollard said the credit crunch, described by the International Monetary Fund as the largest financial shock since the Great Depression, could have a protracted adjustment process.
"Further volatility in world equity markets, exchange rates, and debt markets is likely.
"In this environment, a key strategic priority for the bank is to strengthen its prudential liquidity policy for banks," he said.
In its last Financial Stability Report, the bank announced a series of measures intended to ensure banks had access to sufficient liquidity, including a new facility by which it would accept securitised mortgages as security on loans.
The development and implementation of a prudential liquidity policy for registered banks has been set as the RBNZ's "first strategic priority".
The RBNZ's second strategic priority is the development of new "regulatory arrangements" for non-bank deposit takers or finance companies.
The additional staff required to implement the expansion of the bank's activities has seen the Government give approval for a funding increase.
