christian hawkesby : central banking and financial inclusion remarks by mr christian hawkesby, deputy governor and general manager of financial stability of the reserve bank of new zealand, to the institute of directors, canterbury, 21 april 2023. * * * there is no shortage of challenges as a central banker in the current environment, with domestic and global inflation too high and persistent, and the recent fragilities exposed by bank failures in the united states and europe. today i'll touch briefly on these topics, with a particular focus on financial inclusion and the impacts on different parts of our society. in doing so, i'll highlight some material from our upcoming financial stability report ( to be published on 3 may ) and reiterate some of the messages from our most recent monetary policy review ( 5 april ). periods of high consumer price inflation hit hardest for those with low or fixed incomes such as a government benefit or pension, and those without significant wealth or savings to draw on. at the same time, lifting interest rates to cool the economy, and ultimately combat high inflation, also has consequences for those on the margins of the workforce with the least job security. this is why it is so important to foster an ongoing environment of low and stable inflation. over the course of the past 18 months, the monetary policy committee ( mpc ) has increased the official cash rate ( ocr ) from 0. 25 % to 5. 25 %. at the most recent monetary policy review, the committee noted that : the full impact of the monetary policy tightening is yet to be fully realised, there are early signs that growth in the domestic economy is beginning to slow, and the extent of this moderation will determine the direction of future monetary policy. the recent high profile failures of silicon valley bank ( svb ) and credit suisse have proven pertinent reminders of the importance of financial stability. particularly, the importance of sound financial risk management by banks in an environment with large changes in interest rates. in new zealand, all registered banks are required to have systems in place to monitor and control their material risks, including interest rate risks. our banks also operate different business models that mean that they are not as exposed to the risks that have led to the issues with svb. our banks undertake a regular and rigorous stress testing programme, and our bank financial strength dashboard displays data on the financial health of registered banks in new zealand. 1 / 2 bis - central bankers'speeches our work to promote a sound and stable

value of disclosure and underpin market discipline. the new zealand regime in brief let me briefly remind you of new zealand's approach to banking supervision. our regime relies on self discipline, market discipline, and regulatory discipline. any organisation wishing to call itself a bank while carrying on business in new zealand must obtain a registration from the reserve bank. our conditions of registration prescribe minimum levels of capital in line with international standards known as the basel accord. we also require mandatory levels of public disclosure. directors are required to provide regular public attestations as to the soundness of the bank, the robustness of its systems and its exposure to risk. we monitor these disclosures and meet with all registered banks annually to discuss strategy and any emerging issues. we rely on external auditors to verify financial statements. by year - end, all registered banks will be required to have and publish a credit rating from an approved rating agency. where we depart somewhat from traditional supervisory approaches is in our reluctance to validate what the directors of the bank are accountable for. we weigh more heavily than most the moral hazard arising from the regulator approving specific actions of the board and management of the bank. it is the role of the board and depositors to be satisfied as to the condition and conduct of the bank, not to rely on the supervisor's ability to constrain bank risk - taking. but let me be clear – new zealand does not deny there is a case for bank regulation. but as they say – the devil's in the detail. global trends in bank regulation the draft proposals for the regulation of bank capital recently released by the basel committee on banking supervision, often referred to as basel 2, run to nearly 800 pages. these must be one of the most extensive, most prescriptive, transnational regulatory proposals ever conceived. yet in a recent extensive review of the academic literature joao santos of new york university's solomon center concluded : " the justification for any regulation usually stems from a market failure such as externalities, market power or asymmetry of information between buyers and sellers. in the case of banking, there is still no consensus on whether banks need to be regulated and if so, how they should be regulated. " while this conclusion would not go unchallenged, not least by the tens of thousands of people employed as bank regulators around the world, it serves to highlight the wide range of views which exist about the issue of bank regulation and the extent to which current problems are