Post the latest consultation paper on the review of capital requirements, RBNZ released the feedback received, along with a summary of the submissions. The Capital Review proposes several measures to ensure a safer banking system in New Zealand. This summary collates the common themes and views on the key points raised during the consultation process and does not include the RBNZ response to the submissions. The RBNZ response is expected to be published along with the final decisions in November 2019. Implementation of any new rules will start from April next year, with the transition period of a number of years before banks are required to meet the new requirements.
As part of the Capital Review, which began more than two years ago, RBNZ has published four consultation papers. The first consultation was an issues paper that discussed, at a high level, the scope and key issues that should be covered by the Review. The second consultation discussed the definition of regulatory capital instruments while the third one addressed questions related to the measurement of risk for bank exposures. The fourth and last consultation so far is titled "How much capital is enough?" and it seeks views on the proposed capital requirements for banks and on the other proposals in the Capital Review to date. There was significant and wide-ranging media and public interest in the fourth consultation, with written feedback from 161 respondents. Feedback has also been received from analysts and other interested parties who did not make a formal submission.
In general, respondents support the RBNZ objective to ensure that the financial system in New Zealand is safe, acknowledging the economic and well-being impact of banking crises. Many respondents, particularly from the general public, support the proposed higher capital requirements for banks. A number of respondents observe that higher capital requirements could lead to higher borrowing costs for New Zealanders. Yet some other respondents, in particular banks and business groups, question whether the proposed increases are too large and too costly.
Central to the measures proposed in the consultation paper are increases in regulatory capital buffers for locally incorporated banks. The changes include requiring bank shareholders to increase their stake so that they absorb a greater share of losses in case their bank fails, thus improving the quality of capital and ensuring that banks more accurately measure their risk. Increasing the amount and quality of capital can be reasonably expected to mean that banks can survive all but the most exceptional shocks. RBNZ is also consulting on changes to the quality of capital, constraints on modeling capital requirements, and the implementation timeline. RBNZ has also engaged three external experts for an independent review of its proposals.
Additionally, the RBNZ Deputy Governor Geoff Bascand welcomed reports by two key international financial institutions and a major rating agency last week that support the proposals to increase bank capital ratios. The IMF also released a Statement, post its recent mission, that highlights the need for strengthening bank capital levels and that the proposals appear commensurate with the systemic financial risks facing New Zealand. The latest Economic Survey of New Zealand by OECD also expects that increases in capital will likely have net benefits for New Zealand. Furthermore, Standard and Poor’s says that the proposals should not have material impact on overall credit availability.
- News Release
- Summary of Submissions (PDF)
- Individual Submissions
- Consultation Paper 1 (PDF)
- Consultation Paper 2 (PDF)
- Consultation Paper 3 (PDF)
- Consultation Paper 4 (PDF)
Keywords: Asia Pacific, New Zealand, Banking, Basel III, Capital Adequacy Framework, Capital Requirements, Capital Review, Responses to Consultation, RBNZ
Previous ArticleOCC Bulletin on Implementation of Covered Savings Association Rule
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).