Featured Product

    RBNZ Consults on the Review of Capital Adequacy Framework for Banks

    April 16, 2019

    RBNZ is consulting on the capital adequacy framework for banks and the consultation was initially expected to end on May 03, 2019, although the consultation period has been extended to May 17, 2019. This is the fourth public consultation opportunity in the ongoing review of bank capital adequacy. The proposals are intended to increase the capital requirements for banks to make bank failures less likely.

    RBNZ is consulting on the following proposals:

    • Limit the extent to which capital requirements differ between the internal ratings-based (IRB) approach and the standardized approach, by recalibrating the IRB approach and applying a floor linked to the Standardized outcomes. This reflects one of the principles of the Capital Review: where there are multiple methods for determining capital requirements, outcomes should not vary unduly between methods. In essence, there should be as level a playing field as possible, both between IRB banks and between IRB and Standardized banks.
    • Raise risk-weighted assets (RWA) for the four IRB-accredited banks to approximately 90% of what would be calculated under the standardized approach.
    • Set a tier 1 capital requirement (consisting of a minimum requirement of 6% and prudential capital buffer of 9%-10%) equal to 16% of RWA for banks that are deemed systemically important and 15% for all other banks.
    • Assign 1.5 percentage points of the proposed prudential capital buffer requirements to a countercyclical component, which could be temporarily reduced to 0% during periods of exceptional stress.
    • Assign 1 percentage point of the proposed prudential capital buffer requirement to domestic systemically important bank (D-SIB) buffer, to be applied to banks deemed to be systemically important.
    • Retain the current tier 2 capital treatment, but raise the question of whether tier 2 should remain in the capital framework.
    • Implement a staged transition of the different components of the revised framework over the coming years.

    The expected effect on banks’ capital is an increase of between 20% and 60%. This represents about 70% of the banking sector’s expected profits over the five-year transition period. RBNZ expects only a minor impact on borrowing rates for customers. In the consultation paper, RBNZ also outlined the risk appetite framework used to arrive at the proposed capital requirements. This framework incorporates a specific, two-part policy goal. This includes ensuring that the banking system has the confidence of depositors and other creditors, even when subject to extreme shocks (delivering soundness), and having identified the level of capital needed to achieve soundness and enhance soundness if it can be done without any adverse impact on expected output (delivering efficiency). Submissions will be made public after the consultation closes. Final decision is expected to be communicated in the third quarter of 2019.

     

    Related Links

    Comment Due Date: May 17, 2019

    Keywords: Asia Pacific, New Zealand, Banking, Capital Adequacy Framework, IRB Approach, Standardized Approach, Regulatory Capital, Basel III, RBNZ

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821