Reserve Bank moves to restrict lending
Finance Minister Bill English in Auckland today (Photo: Imogen Crispe / 3 News)
The Reserve Bank is looking at a number of ways to minimise the effects of future credit crises on the economy.
Finance Minister Bill English said this afternoon that a stable financial system is needed to give businesses confidence to grow, which will improve our economy.
He says the economy needs to be protected from periods of excessive growth, such as the 2008 Global Financial Crisis.
"In recent years we have seen the damage these periods of credit growth have caused through excessive household borrowing," Dr English told the Finance 2013 Chamber of Commerce luncheon.
The Reserve Bank is looking at proposals which would allow it to have more influence on the amount of money lending going on in New Zealand.
It could require banks and other lenders to hold additional capital against loans in specifically risky sectors, and as a buffer during an economy-wide credit boom.
Lenders may also have to restrict high loan-to-value ratio lending in the housing sector and adjust their funding ratios to minimize losses in funding shortages.
"It is intended to help manage excesses in credit cycles, as occurred in the lead up to the Global Financial Crisis," Dr English says.
He says these proposed tools will make banks realise they can't always rely on governments to bail them out.
"Banks and other lenders will then take more care if they face all the consequences of their decisions," he says.
The Reserve Bank is also introducing a mechanism to reduce the chances of a taxpayer bailout, called the Open Bank Resolution which spreads a bank's losses across shareholders and creditors.
The Reserve Bank will invite public submissions on the proposals from next month.
Once the tools are finalised, Dr English expects the tools to be used to dampen the Auckland housing market.