A new approach to macro-prudential policy for New Zealand

This article outlines the Reserve Bank’s new macro-prudential policy framework and the governance arrangements surrounding it. Macro-prudential tools can help address the build-up of systemic risk in the financial system. Such tools can create additional buffers for financial institutions and help to dampen growth in credit and asset prices directly, but they are not a ‘silver bullet’. The macro-prudential approach is still in its infancy and there is scope to refine the framework in the light of local and international experience. A recent Memorandum of Understanding between the Minister of Finance and the Governor of the Reserve Bank sets out expectations for macro-prudential policy accountability and transparency.