Liquidity: Core Funding Ratio

The Reserve Bank imposed minimum quantitative ratios for liquidity risk on a number of locally-incorporated banks with effect from 1 April 2010. The ratios are defined in the Reserve Bank Handbook document Liquidity Policy (BS13). The minimum Core Funding Ratio (CFR) was initially set at 65 percent but the Reserve Bank also clearly stated its intention to raise it in two steps to 75 percent by July 2012, subject to further analysis and prevailing market conditions. A regulatory impact assessment (PDF 203KB) considered the introduction of the core funding ratio as part of a wider assessment of the proposed liquidity policy.

Consequently, the minimum CFR was increased from 65 percent to 70 percent through a change in individual banks' conditions of registration on 1 July 2011. A regulatory impact assessment (PDF 183KB) estimated the impact of the increase compared to alternative options.

On 10 November 2011 the Reserve Bank announced a six month deferment, until 1 January 2013, in the next step up to 75 percent. The decision took account of funding market conditions at the time. Given more comfortable funding conditions since then, the Reserve Bank reconfirmed its intention to increase the minimum CFR to 75 percent in January 2013, at the release of the May 2012 Financial Stability Report.

The minimum CFR was increased from 70 percent to 75 percent on 1 January 2013. A regulatory impact assessment (PDF 181KB) analysing the increase was published in January 2013.