our transformation as a prudential regulator a speech delivered to the financial services council in auckland on 22 september 2022 by christian hawkesby, deputy governor and general mananger financial stability written with maisie prior ref # x798971 v1. 2 unclassified introduction kia ora koutou katoa. tena koutou katoa. it is a pleasure to speak to you today at the annual financial services council conference. this was the first speaking invitation that i received when i took up the role of deputy governor and general manager of financial stability. it is a great opportunity to outline what ’ s next for the reserve bank, te putea matua as a prudential regulator and supervisor. in one sense, this role is new to me. i have spent much of the past ten years being regulated rather than being a regulator. in another sense, it is familiar territory, given my time on our internal financial stability committee since 2019, and experience at the bank of england earlier in my career. as an institution we are going through the most significant changes since the reserve bank of new zealand reforms of the 1980s. phase one of these changes was to our approach to monetary policy. they came into force on 1 april 2019 and provided us with a dual mandate – price stability and contributing to maximum sustainable employment – and established our monetary policy committee ( mpc ), replacing the single decision - maker model. 1 today, i ’ ll focus on the result of phase two of these reforms, relating to our institutional arrangements and approach to financial stability, as a prudential regulator and supervisor. this has been an important and exciting opportunity for us, the treasury and government, to lead a review of the reserve bank ’ s whole institutional and financial stability framework, almost from a ‘ clean slate ’. the objective has been to build a framework that fits our role and responsibilities as a modern kaitiaki ( guardian ) of the financial system of aotearoa, new zealand. i ’ d like to begin by acknowledging the mahi done by my predeccesor as deputy governor, geoff bascand. much of what i ’ ll be covering today brings to life the approach he signalled in a speech three years ago as these reforms were first taking shape. 2 i ’ ll begin by providing some background to our responsibility for financial stability, and our role through history, both as an institution and as part of a global community of central banks and prude

this responsibility, with the purpose of ‘ promoting the maintenance of a sound and efficient financial system ’. these changes followed the new zealand financial reforms of the 1980s, including privatisation of the banking system and liberalisation of financial markets. following these reforms, and throughout the 1990s, the reserve bank was well known internationally for its ‘ light touch ’ approach to supervision, and its focus on disclosure and market discipline. 5 the absence of deposit protection was a distinguishing feature of new zealand ’ s regulatory and supervisory approach. 6, 7 this approach was designed to align incentives on banks ’ boards and ensure the sound management of banks. it also meant that depositors had a strong incentive to monitor the financial strength of their bank. at an extreme, it was an approach of buyer beware. broadening expectations on central banks and prudential regulators however, there has been a significant change in the landscape since then. lessons have been learnt from experience both domestically and internationally, especially from the global financial crisis. there are also growing expectations on us, as well as on central banks and prudential regulators internationally, to take a wider view of the financial system, recognising its interconnectedness with the rest of society. some of these broadening expectations on us include : _ _ _ _ _ _ _ _ _ _ _ _ 4 see hunt, c. ( 2016 ), a short history of prudential regulation and supervision at the reserve bank. reserve bank bulletin vol 79 ( 14 ), available at : rbnz. govt. nz / - / media / project / sites / rbnz / files / publications / bulletins / 2016 / 2016aug79 - 14. pdf 5 our tradition of the importance of market discipline through disclosure still endures, and is why we have created the bank financial strength dashboard, and support the development and strengthening of mandatory climate disclosures. 6 see brash, d. ( 1996 ). a new approach to banking supervision. address to the centre for the study of financial innovation, available at : rbnz. govt. nz / hub / publications / speech / 1996 / speech1996 - 06 - 05 7 as part of the proposed deposit takers act, a deposit compensation scheme ( dcs ) is proposed to be introduced. this will allow consumers to have confidence that their deposited funds are safe in the event of an entity failing, up to a total of $ 100, 000 per institution, per depositor. our transformation as a pr