RBNZ submits insights to banking competition inquiry
The Reserve Bank has released its submission to Parliament’s finance and expenditure committee inquiry into banking competition.
The submission outlines RBNZ’s commitment to fostering competition within the banking sector, particularly in agricultural and business banking, as part of its broader mandate to enhance financial stability and economic prosperity.
Balancing banking competition and stability
RBNZ Deputy Governor Christian Hawkesby (pictured above) highlighted RBNZ’s role in supporting a more competitive banking market, aligning with the Commerce Commission’s call for increased competition.
“The Deposit Takers Act that passed in 2023 requires us to take into account competition, and we are doing so by ensuring we take a proportionate approach to regulation while focusing on managing the biggest risks to banks and the financial system,” Hawkesby said.
He noted that RBNZ is actively reviewing its regulations to maintain a balance between financial stability and market competition.
Exploring new avenues to boost banking competition
RBNZ is examining several measures to promote competition, including reviewing access policies for its inter-bank settlement system and exploring the potential of digital cash to spur innovation.
“Competition is also relevant to our other roles as a central bank, including our stewardship of the money and cash system,” Hawkesby said, highlighting ongoing efforts to improve access to capital for Māori communities and enhance the availability of basic banking services.
Capital requirements key to financial resilience
RBNZ’s submission also explains its approach to setting capital requirements for different types of bank lending, which is crucial for promoting the financial resilience of banks.
These requirements use risk weights to match the capital needed to the level of risk associated with a bank’s lending, aligning with international standards.
A new RBNZ bulletin article published alongside the submission indicates that risk weights have a limited impact on loan availability and pricing compared to other factors.
Addressing barriers to banking competition
High customer inertia has been identified as a significant obstacle to banking competition.
RBNZ supports initiatives to reduce barriers to switching banks and encourages innovation through open banking as key strategies to promote competition.
“The Commerce Commission’s market study highlighted high levels of customer inertia as a key barrier to competition,” Hawkesby said. “Efforts to reduce real and perceived barriers to switching banks and supporting innovation through open banking is key to promoting competition.”
RBNZ’s ongoing focus on competition aims to ensure a dynamic and resilient banking sector that better serves New Zealand’s economy and its communities.
Read the RBNZ media release here.
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