This page describes the macroprudential tools or instruments we can use to reduce the risk of 'boom-bust' cycles in the financial system and how we implement them.
Capital and liquidity tools transmit directly to financial stability via bank balance sheets. Capital tools (such as the countercylical capital buffer) do this by increasing the amount of capital that banks have available to absorb losses.
Liquidity tools (like the core funding ratio) do this by reducing the vulnerability of banks to disruptions in funding markets.
Our capital and liquidity tools are:
Borrower-based transactional tools restrict the amount of credit that banks can lend to certain borrowers – for example, based on deposit size or income.
Loan-to-value ratio (LVR) restrictions impose limits on the amount of credit that banks can extend to mortgage borrowers with high LVRs (low deposits). This lessens the potential for large mortgage losses in the event of a significant correction in the housing market.
LVR restrictions were implemented in October 2013, and revised over time.
Read more about LVR restrictions
Debt serviceability restrictions (DSRs) are restrictions we can impose to limit the amount of credit that banks can extend to borrowers relative to their income. These could include, but are not limited to:
Debt-to-income (DTI) ratio restrictions are a cap on mortgage debt (or total debt of a borrower including mortgage debt) as a multiple of income.
Debt serviceability restrictions, including DTI ratio limits, were added to the Reserve Bank’s Memorandum of Understanding (MoU) on macro-prudential policy with the Minister of Finance in August 2021. In November 2021 we issued a consultation on the merits and potential design of DTI restrictions and a floor on test interest rates.
View our 2021 debt serviceability restrictions consultation
Following consideration of the submissions, we intend to proceed with designing a regulatory framework for operationalising DTI restrictions, in consultation with the industry and other stakeholders. We intend to have the framework in place by the end of 2022, so that restrictions could be introduced in mid-2023 if required.
Information from our previous 2017 consultation on this topic is also available here:
View our 2017 debt serviceability restrictions consultation
As well as the tools listed above, we may add other tools over time as the financial system and risks evolve. We will consult on any changes required to enable the operation of other macro-prudential instruments if deemed necessary.
We implement macroprudential tools via changes to the Banking Supervision Handbook and banks’ conditions of registration. This is in accordance with the macroprudential policy framework for New Zealand.
The framework describes how each macroprudential tool transmits to financial stability.
We first consulted on the macroprudential framework between March and May 2013. Documents relating to the original consultation are available in our archive library. These include a background paper, consultation paper, response to submissions and final policy position. We updated the macroprudential framework in 2019.
We give banks notice that we are going to apply a macroprudential tool via their conditions of registration. The following notice periods are indicative only.
Tool | Notice period |
---|---|
Countercyclical capital buffers | Up to 12 months |
Sectoral capital requirements | Up to 3 months |
Adjustments to core funding ratio | Up to 6 months |
Adjustments to LVR restrictions | At least 2 weeks |