RBNZ Releases Materials and Response to Submissions on Capital Review
RBNZ released background materials and papers on the final decisions on the comprehensive review of the capital adequacy framework for locally incorporated registered banks in New Zealand, along with its response to submissions on the fourth and final consultation paper on the capital review. To account for the transitional impact, the first changes resulting from the capital review will come into effect on July 01 2020 and the last on July 01, 2027. The seven-year transition period allows a longer timeframe to meet new capital requirements. Also, RBNZ has decided to implement the change in internal ratings-based scalar from October 01, 2020 and output floor from January 01, 2021. This ensures that the playing field between the internal and standardized approach banks is leveled sooner rather than later.
The final decisions in the capital review included a range of changes to the fourth paper (December 2018) proposals. Many of these changes reflect feedback received during the submission process and points raised in stakeholder meetings with a diverse range of groups. The final decisions include more flexibility for banks on the use of specific capital instruments, a more cost-effective mix of funding options for banks, more transparency in capital reporting, and a lesser increase in capital for the smaller banks consistent with their more limited impact on society should they fail. All of the banks identified as domestic systemically important banks or D-SIBs (ANZ, ASB, BNZ, and WNZL) agreed with the proposed D-SIB buffer of 1%, noting that this calibration aligns with the approach of APRA. However, RBNZ determined that a more appropriate D-SIB buffer for the New Zealand context would be 2%. This is on the basis that D-SIBs in New Zealand are relatively more systemic than they would be overseas, largely due to the high level of concentration in the banking sector.
Furthermore, any legislative changes to the crisis management regime in New Zealand are not likely to come into effect for several years. RBNZ has not yet determined whether establishing a bail-in framework would be desirable in the New Zealand context, even if provided with the legislative authority to do so. If RBNZ were to establish a bail-in framework, it would likely not become effective for several years after the legislative authority is provided. If a bail-in framework were to exist, it should not be assumed that it would be appropriate to use it in all resolution scenarios. If a bail-in framework were to exist, its effectiveness could not be evaluated until after it is executed (bail-in frameworks remain untested internationally).
As part of the next steps, RBNZ will consult on Exposure Drafts of the capital chapters in the Banking Supervision Handbook, to give effect to the 2019 reforms. It is envisaged that the Exposure Drafts will be ready for consultation by April 01, 2020. An indicative date for the end of the consultation on the Exposure Drafts is June 01, 2020, with the revised chapters coming into effect on July 01, 2020. The transition period will begin on July 01, 2020. An indicative transition timeline is given in Appendix 2. RBNZ will consult on the details of the Escalating Supervisory Response policy and operationalizing the countercyclical capital buffer, or CCyB, in 2020.
Related Links
- Press Release
- Response to Feedback on Consultation (PDF)
- Decisions on Capital Review (PDF)
- Background Material
- Capital Review
Keywords: Asia Pacific, New Zealand, Banking, Capital Adequacy Framework, Capital Review, Basel III, Regulatory Capital, Systemic Risk, Resolution Framework, RBNZ
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
BoE Report on Evaluation of Approach to Concurrent Stress TestingRelated Articles
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
DNB Publishes Multiple Reporting Updates for Banks
DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.
NBB Sets Out Climate Risk Expectations, Issues Reporting Updates
The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting
EBA Updates Address Securitization Standards and DGS Guidelines
The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.
FSB Publishes Letter to G20, Sets Out Work Priorities for 2023
The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023
ISSB Standards May Become Effective from January 2024
The International Organization of Securities Commissions (IOSCO) welcomed the confirmation statement by the International Sustainability Standards Board (ISSB) setting out its progress in the development of its first sustainability-related corporate disclosure standards.
