Reserve Bank considers liquidity controls for non-bank deposit takers

The sector’s new regulator has called for submissions on whether NBDTs should face similar liquidity requirements as banks and to what extent, with the intention to provide policy recommendations to Cabinet in the second quarter this year.

Under the new prudential regime, all non-bank deposit takers not given an exclusion by the central bank, will need a credit rating from Standard & Poor’s, Fitch Ratings or Moody’s Investor Services.

The paper puts forward a series of options to regulate liquidity risk which includes “the potential introduction of new quantitative and qualitative requirements,” after central bank Governor Alan Bollard last week said the capital ratio requirements for banks will probably mean he will not have to hike interest rates by as much with banks forced to source more cash from retail deposits and longer-dated wholesale funds.

The bank’s early view on the issue is that borrowers should also face any liquidity requirements to prevent any arbitrage, while its analysis of prescribing exact requirements show the larger NBDTs will “easily exceed the ratio requirements calibrated for locally incorporated banks” given their reliance on securing retail funds.