Reserve Bank outlines plans for bank capital review

Release date
07 March 2017

An upcoming review of the framework for banks’ capital requirements will aim to enhance the soundness and efficiency of the New Zealand banking system, Reserve Bank Deputy Governor Grant Spencer said today.

During a speech to the New Zealand Bankers Association in Auckland, Mr Spencer outlined the context and scope of the review that the Reserve Bank will undertake over the coming year. Mr Spencer also set out broad principles that will guide the Review, centred on simplicity and conservatism.

“In the wake of the global financial crisis, banks and regulators around the world have been reviewing capital standards. It is a complex area with many aspects to consider. The Review will cover the definition of capital, the measurement of risks that the banks face and the minimum capital requirements and buffers.

“Higher levels of capital would improve the soundness of the financial system by reducing the likelihood of bank failures. However, the capital regime could reduce the efficiency of financial intermediation if ratios are pushed too high or standards are made overly complex.  An appropriate capital regime will ensure a very high level of confidence in the solvency of the banking system, while avoiding unnecessary inefficiencies.”

Mr Spencer said the Reserve Bank will outline specific areas to be addressed in an issues paper to be released in April.

“The issues paper will provide the opportunity for stakeholders to give their views on the areas we intend to cover and any other issues they feel should be addressed.

“Detailed policy positions and options for changes to the capital framework will be outlined in consultation papers during the year. We aim to conclude the review by the first quarter of 2018,” he said.

More information
Read the speech – Review of bank capital requirements

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