The Reserve Bank will be expecting New Zealand’s banks to improve their emergency planning and resilience in the wake of the storms that have battered the country and left some flood ravaged East Coast regions isolated.
Describing the aftermath of the storms and flooding as "vivid reminders right now, of the importance of resilience through the system," RBNZ governor Adrian Orr warned the ‘just in time’ approach adopted by banks could leave them less able cope with emergency situations, posing a threat to financial – and social – stability.
"Operational Risk is as important as financial risk or reputational risk, and these are the conversations that I believe have been too lacking,” Orr said after yesterday’s Monetary Policy Statement.
"I'm seeing and reading some horrific stories out there at the moment of isolated communities. When people lose the ability to transact, when they don't have a means of exchange, social cohesion ends very quickly."
The RBNZ has been busy over the past week ensuring cash was distributed and ATMs worked in areas without power and with limited communications.
"There's nothing more distressing than seeing a cafe serving hot coffee, beside a bank whose ATM doesn't work. One had a generator,” said Orr.
"So these are vivid reminders right now, of the importance of resilience through the system."
Orr also pointed out that the natural disaster was a reminder that, in an emergency, cash is still king despite the drop in everyday use.
“We also have a stewardship role, which is new to the bank, around cash and cash distribution and so again that is the work we have to do with the banks and with the cash in transit firms around ensuring that ‘just in time’ doesn’t get in the way of ‘just in case’, so these are the important works we will be doing,” he said.
"This is one of those times most people needed to use cash. So financial inclusion sits with us. It sits with the Financial Markets Authority, but it sits with the banks as well around their social licence and customer care, and so this is work we are doing with them."
“We have been working for a couple of years around models with the New Zealand Bankers Association and testing banking hubs and different ways of doing it. But we are far from being there."