The Reserve Bank of New Zealand, established in 1933, exercises control over monetary circulation and credit. It is the bank of issue, handles all central government banking transactions, manages the public debt, and administers exchange control regulations. The Reserve Bank of New Zealand Amendment Act (1973) empowers the Bank to regulate credit from all sources and requires it to make loans (as the minister of finance may determine) in order to ensure continued full employment.
New Zealand's financial services sector is dominated by the commercial banks, leaving only a minor role for non-bank finance companies and savings institutions. In part this reflects the impact of deregulation since the mid-1980s. Before 1984, the financial sector was highly segmented with tight government controls on what different institutions could offer. (For example, only trading banks could offer checking accounts to clients.) The easing of regulations means that there are now only two formal categories of financial institution: registered banks and other financial institutions. However, both can offer a wide range of financial and banking services.
In 2001, the government of New Zealand dedicated NZ $78 million (US$ 63 million) to the establishment of a new People's Bank, to be run by the New Zealand Post and offer personal banking services, but not corporate or commercial banking. The fees of the People's Bank were expected to be 30% lower than those at other banks.
To be defined as a bank, a financial institution must register with the central Reserve Bank and meet a range of eligibility criteria, such as minimum capital adequacy, experience in the financial intermediation industry, and a commitment to stability of the financial system. The number of registered banks peaked at 24 in 1994, but in 2000 there were 18.
A number of bank mergers has increased the concentration of total banking assets in foreign ownership. Over 95% of total banking assets are foreign-owned, compared with 65% in 1990. The New Zealand banking industry is increasingly influenced by developments in Australia, since Australian banking groups control over two-thirds of banking assets in New Zealand; this share is unlikely to increase further, with the announcement in April 1996 of a conditional buy-out by Westpac Banking Corp. of Trust Bank, New Zealand's last domestically owned bank with a national branch network. The Post Office Savings Bank (established in 1865) has about 1,270 offices and agencies throughout New Zealand.
New Zealand is advantageously placed, since its trading day opens before the US market closes and before the Asian and Australian markets open. The main functions of the New Zealand Exchange Limited (NZX) are to provide an orderly market for the trading and transfer of securities, to protect investors' interests, and to ensure that the market is fully informed. As of 2003, there were 196 companies listing 213 securities worth NZ $42.3 billion on the NZX. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $7.4 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $43.4 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 5.76%. The discount rate, the interest rate at which the central bank lends to financial institutions in the short term, was 4.75%.
The Stock Exchange Association of New Zealand, the forerunner to the New Zealand Stock Exchange (NZSE), was founded in 1915. In May 2003, the NZSE became the New Zealand Exchange Limited (NZX). The stock exchanges in Auckland, Wellington, Christchurch, Dunedin, and Invercargill are members of the NZX, with headquarters in Wellington. Official listing is granted to companies that comply with the Exchange's requirements. These do not impose qualifications as to share capital but do provide that the company must be of sufficient magnitude and its shareholding sufficiently well distributed to ensure a free market for its shares. Subject to the recommendation and approval of the stock exchange nearest to the registered offices, companies may secure unofficial listing for their shares. All transactions in shares quoted in the unofficial list are subject to special brokerage rates.