Letter: Longer-dated funding the point of NZ liquidity policy

Mike Hannah, head of communications, Reserve Bank of New Zealand, writes:

With regard to your article in yesterday's edition, "OCR losing its merit in NZ financial market" the Reserve Bank of New Zealand has not insisted "that the New Zealand banks obtain more of their funding in the domestic market, preferably through term deposits, and decrease their reliance on the international bond markets".  
 
Regarding funding, the main purpose of our new Liquidity Policy is to require banks to lengthen the term of their funding, regardless of its source.  

Among other things, the policy requires banks to have a Core Funding ratio ensuring they raise a minimum percentage of their funding from stable sources (which broadly speaking means smaller deposits from individuals or corporate entities) and/or longer-term funding from financial institutions.  

We have not specified whether the latter is funded on international or domestic markets.  

Indeed, given New Zealand's current account deficit, most wholesale funding, both long- and short-term, can be expected to be raised internationally.