Capital and liquidity tools
Capital and liquidity tools directly affect financial stability through bank balance sheets. Capital tools (such as the countercyclical 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 banks' vulnerability to disruptions in funding markets.
Countercyclical capital buffer (CCyB)
An additional capital buffer we can require banks to meet in an upturn when financial risks are increasing. We can ease the requirement in a downturn to encourage banks to continue lending to credit-worthy borrowers.
Sectoral capital requirement (SCR)
An additional capital buffer we can require banks to meet due to the build-up of credit in a specific sector (for example, lending to the dairy industry, residential mortgages or credit cards), which poses risks to the whole system. We can ease the requirement when sector-specific risks return to normal levels or enter a downturn.
Adjustments to the minimum core funding ratio (CFR)
A requirement that banks fund a certain proportion of their loans and advances with stable sources like retail deposits, long-term wholesale funding or capital. We can ease the requirement in the event of market dislocation.
Borrower-based tools
Borrower-based transactional tools limit the amount of credit banks can lend to certain borrowers – for example, based on deposit size or income.
Loan-to-value ratio restrictions
Loan-to-value ratio (LVR) restrictions limit on the amount of credit that banks can lend to mortgage borrowers with high LVRs (low deposits). This reduces the risk for the banking and financial system if housing prices drop.
We implemented LVR restrictions in October 2013. We adjust LVR settings over time.
Read more about LVR restrictions
Debt serviceability restrictions
Debt serviceability restrictions (DSRs) limit the amount of credit that banks can lend to borrowers relative to their income. These could include, but are not limited to:
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Debt-to-income (DTI) ratio restrictions are a cap on mortgage debt (or a borrower's total debt including mortgage debt) as a multiple of income.
- Debt-servicing-to-income (DSTI) ratio restrictions are a cap on the percentage of a borrower’s income that can be allocated to servicing debt payments.
- Test rate floors set a floor on the test interest rates banks use in their serviceability assessments. We can specify the floor in absolute terms, or as a margin above commercial lending or another reference rate.
We activated DTI restrictions on 1 July 2024. We may adjust DTI restrictions over time.
The full DTI requirements that banks must comply with are set out in our policy document BS20 and any specific conditions of registration that may apply to an individual bank.
Framework for Restrictions on High Debt-To-Income Residential Mortgage Lending (BS20) (PDF, 1MB)
Other tools
In addition to the tools listed above, we may consider using other tools over time as the financial system and risks evolve. We will consult on any changes required to enable the operation of other tools if deemed necessary.
How we implement macroprudential tools
We implement macroprudential tools through changes to the Banking Supervision Handbook and banks’ conditions of registration. We do this in accordance with New Zealand's macroprudential policy framework.
The framework describes how each macroprudential tool contributes to financial stability.
Macorprudential Policy Framework
Notice periods
We give banks notice that we are going to apply a macroprudential tool under their conditions of registration. The following notice periods are indicative only.