A handful of non-bank lenders were told a Funding for Lending Programme (FLP) would be implemented, 45 minutes before the official announcement of its November Monetary Policy Statement, the Reserve Bank has confirmed.
The central bank said specific details of the programme were not divulged through a letter sent to some entities and the information would have been unlikely to offer a market advantage.
“The information should not have been communicated until after the 2pm release, but was sent 45 minutes early,” the bank said in a statement.
“The limited information contained in the letter is unlikely to have provided anyone with a market advantage, but the Reserve Bank is taking the matter seriously.”
The bank has since engaged advisory firm Deloitte to independently review internal processes to find out what happened.
The letter was addressing concerns from the non-bank deposit taking sector (NBDT) that an FLP would create a disadvantage for NBDTs.
“A key concern is that the programme will lower funding costs for large banks, and leave the NBDTs at a competitive disadvantage – hampering their ability to provide credit to certain areas of the financial system.”
The letter went on to try to alleviate concerns.
“We understand this concern, and hope you draw comfort from our expectation that the FLP will lower funding costs by a similar degree for both large banks and NBDTs. We expect the FLP to lower interest rates in two ways: 1. The average cost of participants’ funding is lowered directly, as market sources of funding are substituted with cheaper FLP funding (direct channel).
“2. The availability of FLP funds should decrease demand for other sources of funding (e.g. retail deposits and wholesale funds). This should lower the average interest rate on these sources of funding – lowering the average funding costs for a broad range of financial institutions (indirect channel).”
It then went on to say the impacts would be watched closely.
“Given this is a new tool, there is uncertainty around how it will transmit to financial markets; thus, we will watch the pass-through of funding costs to different sectors of the financial services industry very closely.”
“While we will continue to work with the NBDT sector to ensure a level playing field in the financial sector exists, please appreciate that this must be done within our own mandate, risk appetite, and principles.”
RBNZ said it would comment further once the review was completed.