Featured Product

    RBNZ Publishes Financial Stability Report for May 2020

    May 27, 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system. The financial system in a good position to support recovery. Banks have good capital and liquidity buffers and need to use these to support customers and contribute to the economic recovery. However, outside of the banking system, some parts of the financial system entered this downturn in a vulnerable position. Some non-bank deposit-takers have low profitability and are operating with low buffers. There has been consolidation in this sector in recent years and this is expected to continue. Resilience could also be boosted by seeking operational efficiencies, asset sales, and additional capital.

    Although RBNZ has eased some prudential requirements, the profitability of banks will be affected by rising non-performing loans in the downturn. Appendix 1 to the report outlines economic and financial policy responses to the challenges posed by COVID-19 pandemic. While there remains considerable uncertainty about the economic outlook, stress tests conducted by RBNZ suggest that banks can withstand a broad range of adverse economic scenarios while retaining sufficient capital to continue lending. RBNZ is undertaking stress test exercises to assess resilience of the banking system if the economic downturn becomes very prolonged. The two scenarios developed to test the banking system have similar economic projections to the Treasury’s COVID-19 scenarios 2 and 5 during the peak of the recession in the first 18 months. In the subsequent recovery phase, as the virus worldwide is brought under control, the bank stress test scenarios assume a protracted global slowdown and a slower recovery for the New Zealand economy than the Treasury’s scenarios. Both scenarios are significantly more adverse than the scenarios published in the May 2020 Monetary Policy Statement.

    Results from the RBNZ modeling indicate that banks can maintain capital above their minimum capital ratios in the Baseline Stress scenario. Banks are projected to fall into their capital conservation buffers, meaning they would be meeting their regulatory requirements but also required to develop plans to repair their capital positions over time. Preliminary results from the Very Severe scenario illustrate that there are limits to the economic shocks that banks in New Zealand would be able to withstand with their current capital positions. In this scenario, the RBNZ modeling shows that banks would likely fall below several of their minimum regulatory capital requirements. In this situation, banks would have to undertake significant recovery responses such as raising new capital from shareholders to avoid resolution options. Some of the economic scenarios produced by the Treasury in April are significantly more severe than the scenarios RBNZ is assessing, in terms of the level of unemployment and decrease in economic activity. Under these more extreme (and less likely) scenarios, additional capital and other mitigating actions would be required to avoid widespread failure in the banking system.

     

    Related Links

    Keywords: Asia Pacific, Banking, Insurance, COVID-19, Basel, Credit Risk, Liquidity Risk, Stress Testing, Regulatory Capital, Financial Stability Report, RBNZ

    Featured Experts
    Related Articles
    News

    EC to Defer Application of SFDR Standards Till July 2022

    The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.

    July 23, 2021 WebPage Regulatory News
    News

    BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance

    The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.

    July 22, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Proportionality Assessment Methodology

    The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.

    July 22, 2021 WebPage Regulatory News
    News

    US Agencies Propose Changes to Call Reports and Instructions

    Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.

    July 22, 2021 WebPage Regulatory News
    News

    PRA Finalizes Rulebook Definition of Higher Paid Material Risk-Taker

    The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Examines Asset Encumbrance in Banking Sector

    The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.

    July 21, 2021 WebPage Regulatory News
    News

    EBA Publishes Methodological Guide to Mystery Shopping

    The European Banking Authority (EBA) published a methodological guide to mystery shopping.

    July 21, 2021 WebPage Regulatory News
    News

    APRA Issues Update on Capital Reform Policy Settings for Banks

    The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.

    July 21, 2021 WebPage Regulatory News
    News

    CPMI-IOSCO Assess Continuity Planning of Market Infrastructures

    The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.

    July 21, 2021 WebPage Regulatory News
    News

    ESMA Responds to Proposal Related to Sustainability Standards Board

    The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.

    July 21, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7283