“A governor who was ‘mere’ CEO would be exceptional, and internationally this could be seen as a diminished role by comparison with the peers they engage with at international meetings,” he told Willis.
Quigley said the governor was also a critical link between the board and the Monetary Policy Committee, which is chaired by the governor and is responsible for setting the Official Cash Rate (OCR) to keep inflation on target.
Quigley took aim at Treasury for not providing “any data or even anecdotes to support its case”.
“There is no obvious driver for change,” he said.
He said Orr’s resignation “demonstrated the ability of the non-executive members of the board to communicate, act cohesively and in accord with their legislative responsibilities”.
Orr resigned after the non-executive members presented him with a letter of concerns, which they agreed to bin when he left.
In the lead-up to this, Orr became frustrated, as the non-executive board members stopped backing the bid they initially supported for the Reserve Bank to receive a big boost in government funding.
Treasury had “significant value-for-money concerns” with the proposal, accusing the Reserve Bank of using an unlawful method to pump up the starting point from which it pledged to cut its spending.
Willis was equally unimpressed.
When asked why she wanted to improve oversight of the Reserve Bank, she said the gap between Orr leaving and a new full-term governor starting “provided a good opportunity to review the effectiveness of the existing arrangements”.
Delegating responsibility
While Willis decided not to remove the governor from the board, she did decide to make another governance change, which she announced earlier this month.
The Reserve Bank board will delegate responsibility for setting financial policy (not monetary policy/the OCR) to a new specialist committee.
Rather than the board deciding how to regulate banks, other deposit-takers and insurers, the job will be given to a Financial Policy Committee.
The committee will decide how much capital financial institutions need to hold to keep them strong and how loan-to-value ratio (LVR) and debt-to-income (DTI) restrictions, imposed on banks’ mortgage lending, are set.
Its members will include the Reserve Bank board chair, three other board members, the governor and two external members, appointed by the board.
As is currently the case, decision-making will be informed by advice prepared by Reserve Bank staff.
Treasury noted it was hard in a small country to find board members with both governance and prudential policy expertise, who weren’t conflicted (ie worked for a financial institution).
Treasury said that while it had recently prioritised appointing members to the board who had prudential expertise, delegating this job to a new committee would help the board focus more on its governance and oversight role.
The committee is expected to have its first meeting early next year, once external members are appointed.
The recruitment process is also under way for a board chair, following Quigley’s resignation in August.
Dr Anna Breman will begin as governor on December 1, taking over from Christian Hawkesby, who has been filling the role since Orr’s departure.
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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