geoff bascand : reflections of a central banker remarks by mr geoff bascand, deputy governor and general manager of financial stability of the reserve bank of new zealand, to financial services council ( fsc ) regenerations, online, 7 december 2021. * * * thank you for the opportunity to speak with you today. the growth in our relationship with the financial services council ( fsc ) has been enjoyable, fruitful, and indicative of our maturing engagement approach with the financial sector. we have played our part, but i am also very appreciative of how constructive and proactive richard klipin, rob flanagan and the fsc have been in fostering it as well. macroeconomic and financial volatility i came into the rbnz in 2013 – after having observed and interacted with it from close proximity in other related analytical and policy domains during my time at stats nz and treasury prior to that. this was a time in the aftermath of the gfc when central banks were reflecting on monetary and financial stability policies and how to avoid another financial crisis in the future. domestically, our housing market was surging, with loose lending standards seeing greater than 20 % of all outstanding mortgages with lvrs over 80 %. the rbnz became a fast follower of the emerging practice of macro – prudential policies. the role and interaction of monetary and macro - prudential policies has been a feature of the past decade and looms just as large today as it did in 2013. using interest rates to lean against excessive borrowing is undesirable when inflation is low, as it was then, and so the macro - prudential policies we use to mitigate boom & bust cycles in the economy provide additional freedom for monetary policy to do its role whilst containing risks from excessive leverage. while it is challenging getting macro - prudential policies understood and indeed calibrating them in terms of costs and benefits, 1 i am a strong believer they redress the inherent tendency of banks to be pro - cyclical, underestimating credit risks when asset prices are rising. i expect macro - prudential policies to remain an important policy tool in years to come, though how much they are applied in a temporary manner or via permanent standards will be a topic for future policymakers. debt - to - income restrictions to my mind are an important and probably better tool than lvrs, but perhaps a mix is best. neither will fix the housing market, and nor

in the years ahead. i want to mention a few more. central bankers – especially their financial stability representatives – are paid to think about future trends and market dynamics and worry about what might go wrong, preparing mitigation plans accordingly. cyber risks and climate risks require deeper understanding and are appropriately receiving increased focus. while risk management is the day - to - day activity of financial institutions, understanding how these risks can cumulate at the system level or be under - priced due to implicit government guarantees is appropriately a focus for the central bank. without further analysis, we don ’ t know how serious these risks are to system stability. important as it is to keep alert to new or emerging risks, as these two are, at the same time we need to maintain our constant watch around market, credit, liquidity, or operational risks that will inevitably raise their head in the years ahead. for the reserve bank, oversight of climate and cyber risks needs to be an ’ and ’, not an ’ or ’. efficiency and innovation an enduring challenge for a regulator is the tension between promoting efficient, dynamic markets that generate innovation and customer benefits with the uncertain consequences for stability, resilience, and disruption or adjustment costs. the costs of regulatory compliance play into this equation as well. proportionate regulation is the goal ; but as a prudential regulator i would put more weight on being proportionate to risk than to size. i acknowledge the weight of our endeavour in recent years has been to strengthen resilience and compliance. there is still work to do to complete this ’ uplift ’. implementation of the deposit taker ’ s bill and its new prudential standards framework will keep the banking and nbdt sector occupied for a number of years yet. the focus will shift somewhat to enhancing and completing the resolution framework, including the major task of implementing deposit insurance ( compensation ). across our cofr partners, seeing through the conduct of financial institutions bill ( cofi ) and the credit contracts and consumer finance act ( cccfa ) into the way the financial sector works will absorb considerable effort. closer cofr relationships have been a big step forward 4 / 6 bis central bankers'speeches but there are more steps on the ladder to achieve joint prioritisation and integrated policy and supervisory approaches. the strengthened cooperation amongst regulatory agencies, now embedded via legislation in the formalisation of the council of financial regulators ( cofr ), should help maintain a balanced focus on efficiency, customer outcomes, and financial stability.