Even before the shocks created by the recent collapse of Silicon Valley Bank and Credit Suisse, the New Zealand banking system was undergoing a transformation which will make the next 10 years dramatically different to the last 80, says Chapman Tripp in The banking industry: a look ahead.
Releasing the publication today, Chapman Tripp partner Luke Ford said the firm had identified five key factors driving that change.
“They are not unique to New Zealand, in fact in many cases, New Zealand is behind the curve. But New Zealand is facing these changes head on, all at once, at a time when technology is advancing into unknown territory and accepted ‘truths’ of modern banking are being re-examined.”
The five change drivers are:
- The structural redesign of the domestic banking sector by the Reserve Bank of New Zealand (RBNZ), in particular the impending Deposit Takers Bill which, among other things, will introduce a depositor compensation scheme;
- Technological innovation, including the Central Bank Digital Currency being developed by the RBNZ, payment improvements, and open banking;
- A need for banks to reduce their traditional reliance on deposit bases, as customers are able to move their deposits among banks, and even to non-bank formats, more easily;
- An increased focus on social licence in a rising interest rate environment, and
- New front-line obligations on banks, together with a tougher and better resourced enforcement regime.
“The recent global turmoil illustrates the economic factors that are currently weighing on the banking sector, offer insights into how catastrophic events can unfurl, and provide lessons for New Zealand.
“In particular, the ‘bank runs’ that have been associated with each failure have been turbocharged by modern technology.
“Finding the right balance of financial regulation, market discipline and investor protection is a hard problem to solve. Unintended consequences – and complaints – arise regardless of approach. And where there are depositor/investor losses, litigation will follow,” Luke said.
Click the link below to read the report.