The Reserve Bank has agreed to purchase NZ$8.7 billion of residential mortgage-backed securities from the ANZ National and Westpac banks should they require a liquidity injection.
Tightening liquidity in New Zealand does not stem from problems with domestic residential mortgage-backed securities since the problems of US-type sub-prime lending have not been permitted to occur in New Zealand. The problem, however, is in banks re-financing their needs in global financial markets where credit has become extremely tight. The parent companies of the major trading banks in New Zealand, headquartered in Australia, have, however, been writing down bad loans in recent quarters.
In early May this year, the Reserve Bank expanded its lender of last resort facility to trading banks by permitting residential mortgage-backed securities to be posted as collateral in return for Reserve Bank loans.