A Bulletin article published today provides a short history of the Reserve Bank’s prudential supervisory role, identifying a number of distinct shifts in the prudential supervision regime during the Reserve Bank’s history.

The article pays particular attention to the establishment of New Zealand’s first prudential supervision regime in 1986, which laid the foundations for a number of key features that have endured over time, including: a systemic focus; emphasis on failure management; absence of objectives tied to depositor protection; and three pillars of market discipline, self-discipline, and regulatory discipline.

The article also reflects the Reserve Bank’s continued evolution and use of regulations to recognise the limitations of self- and market discipline. The article looks at how the global financial crisis (GFC) prompted action from regulators both globally and in New Zealand. Regulators introduced policies to make the financial system more resilient and for regulated entities to bear the brunt of any poor decisions they might make.

The article concludes that the Reserve Bank continues to place a high degree of importance on pursuing its prudential functions in a way that contributes to a dynamic and efficient financial system.

Bulletin: A short history of prudential regulation and supervision at the Reserve Bank