It has released a consultation paper, and is seeking submissions until the middle of May.
The Reserve Bank says the core parts of the prudential regime have been in place since 2010, and it is time to assess how well the framework is working.
NBDTs are entities that offer debt securities to the public, and borrow and lend money, or provide financial services, or both – organisations such as finance companies, credit unions and building societies.
The Reserve Bank says there are about 68 NBDTs operating in New Zealand. It says it’s a rapidly changing sector. After 1998, it grew faster than the banking sector.
At its height, the non-bank lending sector had assets of about $25 billion and was responsible for about 8% of financial institutions’ lending.
Since then, 20 finance companies have failed and three institutions have become banks.
Deputy governor Grant Spencer said: “NBDTs play a valuable role in the financial system by providing alternative deposit products to customers and investors, and alternative sources of funding for individuals and businesses.”
Key parts of the consultation document include fine-tuning the definition of what constitutes an NBDT and ensuring the appropriate supervisory arrangements are in place for the sector.
The paper says that the sector’s size, liquidity provisions and activities should be considered in determining if distress or failure would pose significant harm to the financial system as a whole.
The paper also looks at the definition of an NBDT, the underlying objectives of the regime, as well as considering the prudential and disclosure requirements, the offences and penalties in place for non-compliance, and crisis management powers.
“In looking at these matters, the Bank is conscious of the licensing regime for NBDTs that is currently before Parliament, and how this will affect the regulation of NBDTs in future,” Spencer said.
The Bank will prepare a report for the Minister of Finance on the outcomes of the review, which will then be tabled in Parliament.
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