The Reserve Bank is reviewing the housing loan capital adequacy requirements currently in place for banks, and today released a consultation paper (PDF 380KB) that reviews an important aspect of these rules.
Reserve Bank Deputy Governor Grant Spencer said the housing loan requirements determine the amount of capital that banks need to set aside to cover potential losses from lending to the housing sector. The rules, set in early 2008 as part of the Bank's implementation of the Basel II capital adequacy regime, are reviewed periodically in light of evolving market trends and risks.
"The aim of the current review is to ensure that banks' baseline capital requirements for housing loans properly reflect risk in the housing sector, particularly in relation to Loan to Value Ratios (LVR). The Bank is proposing higher capital requirements for high LVR loans.
"A review is timely right now given the Reserve Bank's current proposal to introduce a macro-prudential policy regime. It makes sense to get the baseline capital requirements right before the macro-prudential framework is introduced," Mr Spencer said.
The Reserve Bank also intends to review other aspects of banks' capital holdings against housing loans.
Any changes coming out of the review will result in adjustments to the Reserve Bank's existing regulatory requirements on banks.
Submissions on the proposals are sought by 16 April 2013.
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