RBNZ outlines bank capital preferences

by Krizzel Canlas09 Jul 2018

The Reserve Bank of New Zealand (RBNZ) has published their in-principle decisions on capital requirements for registered banks.

“Adequate capital is the first and most powerful defence for banks to survive unwanted shocks, Governor Adrian Orr said. “New Zealand banks face both global and New Zealand-specific risks, so our capital requirements need to reflect this.”

The in-principle decisions are part of a thorough review of capital adequacy in New Zealand banking system. They are designed to bolster how much capital banks need to hold, make it easier for investors to assess capital adequacy, and to minimise any unintended competitive advantages.

Orr said they want to ensure fairness to both large and small banks, and avoid creating unintended competitive advantages.

“Importantly, all banks must have ‘enough skin in the game’ to truly focus on enterprise risk management, responsible lending, and the ability to weather all events,” he stated.

The in-principle decisions will require the four largest banks to report using both their own risk models as well as the standardised frameworks the other banks use.

The next phase of the Capital Review will be a quantitative impact study of the in-principle decisions made so far by the Reserve Bank. The final phase will address the setting of minimum capital ratios. The Reserve Bank aims to conclude the key elements of the Capital Review in 2018.

 

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