RBNZ published its "in-principle decisions" on capital requirements for registered banks, as part of the review of capital adequacy in the New Zealand banking system. In this context, RBNZ also published a summary of submissions and its responses to the submissions on the consultation on calculation of risk-weighted assets (RWA). The consultation had closed on March 19, 2018.
The components of RWA are credit risk, operational risk, and market risk. Qualifying banks are permitted to use models to calculate RWA, while the remaining banks use the standardized approach. After considering the feedback received, RBNZ has made the following in-principle decisions:
- The capital framework will continue to permit qualifying banks to use internal models to estimate credit-risk-related RWA (the internal ratings-based, or IRB, approach), although there will be more restrictions on modeling
- The IRB approach will not be permitted for any credit exposure with an external rating (for example, sovereigns, banks, some large corporates)
- An RWA floor will be imposed on IRB models. This floor will be a proportion of the equivalent standardized calculation RWA value
- All banks will calculate the RWA arising from operational risk in the same way, using the Basel Standardized Measurement Approach
- IRB banks will be required to report RWAs (and associated credit ratios) calculated using the standardized approach, along with the RWAs arising from the IRB approach (dual reporting).
The in-principle decisions are designed to bolster the capital that banks need to hold, to make it easier for investors to assess capital adequacy, and to minimize any unintended competitive advantages. The next phase of the capital review will be a quantitative impact study of the in-principle decisions made by RBNZ so far. The final phase will address the setting of minimum capital ratios. RBNZ aims to conclude the key elements of the capital review in 2018.
Keywords: Asia Pacific, New Zealand, Banking, In-Principle Decision, Capital Adequacy Framework, Basel III, Risk Weighted Assets, RBNZ
Previous ArticleUS Agencies Issue Statement on the Impact of EGRRCP Act
EBA published guidelines on loan origination and monitoring, which bring together prudential standards and consumer protection obligations, along with the anti-money laundering and the Environmental, Social, and Governance (ESG) considerations.
EBA published a consultation paper on the draft amended regulatory technical standards on own funds and eligible liabilities.
EBA published a report on convergence of supervisory practices in 2019.
PRA published a set of questions and answers (Q&A) covering common queries regarding residential and commercial property valuations, for the purpose of the Capital Requirements Regulation (CRR), during the period of disruption caused by COVID-19 pandemic.
IOSCO proposed updates to its principles for regulated entities that outsource tasks to service providers.
MAS announced that the first phase of the Veritas initiative will commence with the development of fairness metrics in credit risk scoring and customer marketing.
BoE published the Statistical Notice 2020/4 to update the buy-to-let (BTL) Phase 2 and Phase 3 definitions for the Interest Rate Type data item.
FSI published a brief note that examines challenges facing the banking sector as a result of the payment deferral programs put in place to support borrowers affected by the COVID-19 pandemic.
PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.
EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).