RBNZ encourages new market
The central bank's rationale for the move is to boost liquidity in the market: it wants the banks to securitise a portion of their mortgages.
"These could then be provided as collateral for loans from ourselves...should their normal sources of funding be disrupted in the future," says deputy governor Grant Spencer.
Although the impetus for the move is a bid to improve the New Zealand financial sector's risk profile, a flow on effect is likely to be the development of a mortgage backed securities market in New Zealand.
The banks could also offer such securities to investors, even though they would still have to hold some of them on their books.
"The first aim is to get [the banks] to create these securities and to hold them on their own balance sheets," Reserve Bank governor Alan Bollard says.
"But in the process of doing that it may well set the scene for a more liquid mortgage backed securities market in New Zealand. That's not the prime aim though."
Such markets have dried up "pretty much completely" in the recent international credit crunch, although the Bank of England – in the process of releasing its financial stability report on Friday – noted that bargain hunters are now snapping up mortgage backed securities.
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