Consultation on implementation of Basel III capital adequacy requirements in New Zealand

In December 2012 the Reserve Bank released new versions of the Banking Supervision Handbook documents Capital Adequacy Framework (Standardised Approach) (BS2A) (PDF 1.3MB) and Capital Adequacy Framework (Internal Models Based Approach) (BS2B) (PDF 1.3MB) in order to implement the Basel III requirements for the definition of regulatory capital instruments for New Zealand locally incorporated registered banks. These documents were revised in March 2013 to implement the Basel III requirements in relation to enhanced risk coverage and in respect of exposures to central counterparties.

Consultation papers

The following paragraphs set out the consultations undertaken by the Reserve Bank prior to implementing the Basel III capital adequacy standards.

In the May 2011 edition of the Financial Stability Report (PDF 1.4MB, chapter 6) the Reserve Bank set out the general principles it would use to guide its implementation of Basel III.

In November 2011, the Reserve Bank issued a consultation paper on the implementation of Basel III (PDF 200KB) in New Zealand. This consultation paper set out the Reserve Bank's proposals for implementing core Basel III capital measures relating to capital ratios, the definition of capital and the leverage ratio.

In March 2012 the Reserve Bank issued a consultation paper on further elements of Basel III capital adequacy requirements in New Zealand (PDF 308KB). This paper set out the Reserve Bank's proposals for further elements of the framework: the operation of the conservation buffer; the countercyclical buffer; and minimum requirements to ensure that all classes of capital instruments fully absorb losses at the point of non-viability ("loss absorbency"). The paper also proposed transitional arrangements.

In September 2012 the Reserve Bank issued a consultation package on proposed changes to the Banking Supervision Handbook to put into effect Basel III requirements. This package included cover letters to standardised (PDF 54KB) and internal models (PDF 57KB) banks, and draft changes to the following Banking Supervision Handbook documents: Statement of Principles (BS1) (PDF 313KB), Capital adequacy framework (standardised approach) (BS2A) (PDF 154KB), Capital adequacy framework (internal models based approach) (BS2B) (PDF 145KB).

In October 2012 the Reserve Bank issued a consultation paper on its proposed implementation of the final capital-related aspects of Basel III (PDF 241KB), including the proposed draft changes to BS2A and BS2B (PDF 149KB). The consultation paper focused specifically on the Basel III enhanced risk coverage requirements concerning counterparty credit risk and related issues.

Reserve Bank response to submissions

In May 2012 decisions were taken on some key elements of Basel III. These decisions were supported by the Reserve Bank's cost benefit analysis and took into account submissions received and developments in the Basel III proposals of the Australian Prudential Regulation Authority (APRA). The Reserve Bank sent all locally-incorporated New Zealand banks a letter providing an update on Basel III implementation in New Zealand (PDF 150KB), including details of the May 2012 decisions.

In September 2012, the Reserve Bank published a full Response to submissions (PDF 219KB) on its November 2011 and March 2012 consultations, and a Regulatory Impact Assessment of Basel III capital requirements in New Zealand (PDF 639KB).

In December 2012, the Reserve Bank published a full response to submissions (PDF 32KB) on its September 2012 consultation document on Basel III.

In December 2012, the Reserve Bank also published its response to submissions on its October 2012 consultation document concerning the implementation of the final capital-related aspects of Basel III: counterparty credit risk and other related requirements.

Further consultations on requirements for capital instruments and recognition

In June 2015 the Reserve Bank consulted on minor changes to the requirements to recognise instruments as regulatory capital (PDF 93KB), the process to obtain a notice of non-objection to treat a capital instrument as Additional Tier 1 or Tier 2 capital, the requirements for Reserve Bank approval to repay capital instruments and on requirements for banks to notify the Reserve Bank of large changes in the amount of Common Equity the bank holds. “Response to Submissions: Consultation on BS16 and Definition of Capital in BS2” (PDF 98KB) provides a summary of submissions received and the Reserve Bank’s response to those submissions.

The revised requirements took effect from 1 November 2015 and are provided in the following Banking Supervision Handbook documents: Capital Adequacy Framework (Standardised approach) (BS2A) (PDF 1.3MB), and Capital Adequacy Framework (Internal Models Based Approach) (BS2B) (PDF 1.1MB) and Application requirements for capital recognition or repayment and notification requirements in respect of capital (BS16) (PDF 189KB).