English Bill: Motions — Reserve Bank Funding Agreement—Ratification 
English Bill: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:665;Page:12455] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That pursuant to section 161(2) of the Reserve Bank of New Zealand Act 1989 the House ratify the funding agreement entered into by the Minister of Finance and the Governor of the Reserve Bank of New Zealand pursuant to section 159 of that Act on 8 June 2010 and presented to the House on 18 June 2010. 
 The activities of the Reserve Bank have become significantly more extensive since the last time that Parliament ratified the Reserve Bank Funding Agreement. Five years ago the Reserve Bank had assets of around $12 billion and it now has assets of $31 billion. In fact it holds half of all the assets that the Crown holds through financial institutions considerably larger than the New Zealand Superannuation Fund and about as large as the New Zealand Superannuation Fund and the Accident Compensation Corporation combined. It is our most significant Government-owned financial institution by some considerable distance. 
Interestingly the growth in the size of the Reserve Bank’s activities occurred during a time when the economy was growing and over the last couple of years it has been relatively stable. This is in sharp contrast to other central banks around the world that in the last 2 or 3 years have in a number of cases seen their size treble as they have taken on the assets or liabilities of struggling banking systems. We are fortunate to be considering this agreement in the context where the Reserve Bank has neither been unduly affected nor had its responsibilities stretched by a stressed banking system although there has been some relatively small impact on the Reserve Bank’s balance sheet. 
The Reserve Bank’s operating expenditure is funded from gross income under terms established by the Reserve Bank of New Zealand Act 1989 and the 5-year funding agreement. Section 159 of the Reserve Bank of New Zealand Act requires the Minister of Finance and the Government to enter into funding agreements for successive periods of 5 years. The current funding agreement was signed in April 2005 varied in April 2008 and expired at the end of June 2010. This motion sees the Reserve Bank’s operating expenditure profile increase from $46.9 million in 2009-10 to $47.8 million in 2010-11 then increase to $56.4 million by the final year 2014-15. This increase in expenditure reflects the additional responsibilities that Parliament has given or is in the process of giving the Reserve Bank as well as ensuring that the bank maintains the capability to carry out its functions effectively now and in the future. In the light of the financial crisis of 2008 and 2009 we pay a good deal more attention to the Reserve Bank’s ability to carry out its function of maintaining stability in the financial system. 
Changes to the Act in 2008 gave the Reserve Bank responsibility for the prudential oversight of the non-bank deposit takers. Under the Insurance (Prudential Supervision) Bill the Reserve Bank will shortly take on responsibility for the prudential oversight of insurers. The Reserve Bank also has a new role to play in the complex operation of anti - money-laundering and countering financing of terrorism. 
As well as resourcing the bank to undertake these new responsibilities the funding agreement provides for the upgrade of New Zealand’s banknotes which will be 15 years old by the end of the agreement. Provision is also made to maintain the current capacity and quality of policy teams and information technology systems. This Government is committed to ensuring that rigour is brought to the expenditure of all public moneys including that by the Reserve Bank. We have not increased funding without strong justification and clear benefits. Accordingly the new 5-year funding agreement has been developed in an environment of considerable scrutiny. The bank has had to convince the Government that its activities will provide value for money. Equally the Government has had to ensure that the bank is adequately resourced to carry out the significant new functions that Parliament is handing to it. The agreement reflects tight control of underlying costs and reprioritisation within existing funding levels to absorb a range of cost pressures. 
Our central bank has a reputation for efficiency and effectiveness. The Government expects it to continue to deliver excellence in outcomes while providing leadership across its entire range of activities. The Governor understands the need to use the resources he has available to best effect. Although New Zealand did successfully navigate the global financial crisis much still needs to be done and in this agreement we are ensuring that the Reserve Bank has the resources to complete the job. Ratification of this new 5-year funding agreement is evidence of a commitment by Parliament that the Reserve Bank remain operationally independent and that it is equipped to handle the roles that Parliament has given it as a prudential supervisor to ensure that the Reserve Bank can fulfil the functions that many central banks have now taken on to underwrite financial stability. I therefore ask for the House’s support in ratifying this new funding agreement.