Cullen Michael: Motions — Reserve Bank Funding Agreement—Ratification 
Cullen Michael: Motions — Reserve Bank Funding Agreement—Ratification 
[Volume:627;Page:21814] 
Hon Dr MICHAEL CULLEN (Minister of Finance): 
 I move  
That pursuant to section 161(2) of the Reserve Bank of New Zealand Act 1989 this 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 20 April 2005 and presented to the House on 26 May 2005 
. The Reserve Bank’s operating expenditure is funded from gross income under terms established by the Act and a 5-year funding agreement. This funding agreement applies from 1 July 2005 to 30June 2010. The Act provides for these regular funding agreements for successive 5-year periods. The current agreement expires at the end of this month. 
New funding levels need to be agreed for the 5 years through until June 2010. If these are not agreed then the current funding agreement which provides for $33 million net is rolled over. The new funding agreement seeks to lift that amount to just over $39 million net per annum. That increase reflects a substantially changed environment—one of increased demands on policy outputs for the Reserve Bank one where systems are now at the end of their useful life and need to be replaced and one where new strategies need to be implemented to mitigate some business risks. Offsetting the lift in the proposed new funding agreement will be substantial savings accruing from the modernisation of the silver coinage as well as some smaller efficiency gains. 
The major influences behind the proposed increase are as follows. Firstly in recent years global regulatory standards affecting financial institutions have been upgraded in terms of monitoring and controlling their activities and the cross-border flows of money. A good deal of this of course is to do with anti-terrorism concerns. Key initiatives include also new supervisory standards known as Basel II and new accounting standards. As part of the international financial network the bank has to increase the level of its regulatory responses. 
Secondly 85 percent of our banking assets are now concentrated in the four major Australian banks and that in turn lifts the potential systemic risk in the event of a major bank failure. That means that the bank must increase its monitoring capacity and be committed to ensuring that New Zealand has resilient crisis management options for stand-alone banks and the wider financial system. The reinvigoration of the banking regulatory function includes the ability to better coordinate and communicate with foreign regulators. 
I think it is fair to say that the current Governor of the Reserve Bank was quite concerned when he became governor about the weakness on the regulatory side. It is particularly fair to place on the record that Dr Brash as the previous governor had also indicated the need to improve the regulatory side of the bank’s functions whereas the concentration in the period from 1999 to the early 2000s was on the monetary policy function rather than on the regulatory function of the bank. 
The bank needs also to fund the replacement and upgrading of several critical computer systems including the replacement of its treasury and document management systems its economic forecasting and data systems and its core financial reporting system and the upgrading of critical national payments system infrastructure. 
The final major influence is the fact that the bank is seeking to better safeguard its payment operations in the event of a natural disaster—which considering where the bank sits is obviously a very sensible concern. The bank needs to invest in a number of projects that will protect its computer facilities provide an enhanced presence out of Wellington for key infrastructure and services and establish a single disaster-recovery site in Wellington to replace the current multiple sites for dealing with a local disaster. I ask for the House’s support in ratifying this new funding agreement which I think will be important as we move forward in terms of the regulatory functions of the bank.