Geoff Bascand: Macroprudential policy - past, present and future

Speech by Mr Geoff Bascand, Deputy Governor and General Manager of Financial Stability of the Reserve Bank of New Zealand, to the 54th University of Otago Foreign Policy School, Dunedin, 30 June 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Kia ora tatou, it is great to be here with you today to talk about the important role of macroprudential policy in the management of financial stability.

It is six years now since macroprudential policy was established in New Zealand via a policy memorandum with the government in May 2013, and loan-to-value ratio (LVR) restrictions were first implemented in October 2013. At its introduction, we committed to reviewing the policy's efficacy after five years; most of my talk today is drawing on that recently completed review and the lessons we drew for how we use macroprudential policy in the future.

Macroprudential policy in some ways is new wine in old vessels. Direct restrictions on the borrowing capacity of households, such as the LVR instrument, are novel for New Zealand's recent history. More than 30 years ago the removal of a wide range of restrictions on borrowing, including interest rate controls and government directives on bank lending to various industries, led to significant improvements in the efficiency of the financial system.