RBNZ Issues In-Principle Decisions on Capital Requirements for Banks
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.
Related Links
Keywords: Asia Pacific, New Zealand, Banking, In-Principle Decision, Capital Adequacy Framework, Basel III, Risk Weighted Assets, RBNZ
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Pierre-Etienne Chabanel
Brings expertise in technology and software solutions around banking regulation, whether deployed on-premises or in the cloud.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
US Agencies Issue Statement on the Impact of EGRRCP ActRelated Articles
BoE Provides Reporting Update on Form AS and Form FV
BoE updated the known issues document for the statistical reporting Forms AS and FV.
EBA Provides Clarity on Implementation of Guidance on COVID Reporting
EBA updated the report on the implementation of selected COVID-19 policies.
OSFI Provides Update on Implementation of IFRS 17 in Canada
OSFI published a letter that provides an update on the milestones for the implementation of the IFRS 17 standard on insurance contracts.
FSI Note Discusses Challenges Associated with COVID Relief Measures
The Financial Stability Institute (FSI) of BIS published a brief note that examines the supervisory challenges associated with certain temporary regulatory relief measures introduced by BCBS and prudential authorities in response to the COVID-19 pandemic.
BCBS Consults on Principles for Operational Risk and Resilience
BCBS is consulting on the principles for operational resilience and the revisions to the principles for sound management of operational risk for banks.
BoE Updates Template and Definitions for Form ER
BoE updated the reporting template for Form ER as well as the Form ER definitions, which contain guidance on the methodology to be used in calculating annualized interest rates.
MAS Announces Key Initiatives to Support Adoption of SORA
MAS announced several initiatives to support adoption of the Singapore Overnight Rate Average (SORA), which is administered by MAS.
HKMA Announces Repayment Deferment Under Payment Holiday Scheme
HKMA, together with the Banking Sector Small and Medium-Size Enterprise (SME) Lending Coordination Mechanism, announced a ninety-day repayment deferment for trade facilities under the Pre-approved Principal Payment Holiday Scheme.
ESRB Paper Presents Alternative Approach to EBA Stress Test Proposal
The Advisory Scientific Committee of ESRB published a response, in the form of an Insights Paper, to the EBA proposals for reforms to the stress testing framework in EU.
FASB Simplifies Accounting for Certain Financial Instruments
FASB issued a new Accounting Standards Update (2020-06) to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity.
