RBNZ Consults on Implementation of Capital Review Changes

RBNZ is consulting on the detailed rules, including the new rules for instruments that make up a bank’s capital and the framework setting out responses RBNZ would take if a bank does not meet capital buffer requirements. The Capital Review implementation consultation is being presented through exposure drafts of revised documents from the Banking Supervision Handbook, which set out the details of the policy framework and rules that apply to registered banks in New Zealand. These changes have been detailed further in the consultation paper titled "Changes to the Banking Supervision Handbook: Exposure Draft for Capital Review Changes." The exposure drafts also form part of the roll-out of the replacement for the Banking Supervision Handbook, which is being restructured—and renamed as Banking Prudential Requirements—to re-organize and clarify the existing Handbook documents. This was one of the key areas for improvement identified during a Regulatory Stocktake that the RBNZ undertook in 2015. 

The full, restructured, and renamed Banking Prudential Requirements covering capital adequacy will be in place from July 01, 2021. RBNZ plans to publish the full revamped Banking Prudential Requirements by the end of 2021. As part of this consultation, RBNZ has published drafts of the planned Banking Prudential Requirements (BPRs), which are structured as follows:

• BPR100: Capital adequacy
• BPR110: Capital definitions
• BPR120: Capital adequacy process requirements
• BPR130: Credit risk-weighted assets (RWAs) overview
• BPR131: Standardized credit risk RWAs
• BPR132: Credit risk mitigation
• BPR133: Internal Ratings-Based credit risk RWAs
• BPR134: IRB minimum system requirements
• BPR140: Market risk
• BPR150 and 151: Standardized and Advanced Measurement Approach (AMA) operational risk
• BPR160: Insurance, securitization, and loan transfers
• BPR001: Glossary

The remaining of the Banking Prudential Requirements will be rolled out in due course. RBNZ notes that some additional work that will be undertaken in the second half of 2021 to implement dual (standardized and IRB) reporting for IRB banks from the first quarter of 2022. Another key consultation point is the draft text to implement the 2019 Capital Review decisions. RBNZ is also consulting on some new policy decisions that follow from the outcomes of the Capital Review. These decisions are:

• Changes to distribution restrictions, including separate sets of restrictions for distributions on Common Equity Tier 1 (CET1) and Additional Tier 1 (AT1) capital
• The Capital Buffer Response Framework (CBRF), which outlines the possible supervisory actions that RBNZ may take as a bank enters into its prudential capital buffer
• A proposal to include template terms sheets for AT1 and Tier 2 capital instruments, which include the prudential requirements for instruments to qualify as capital, as well as market standard requirements (These can be used by banks to issue RBNZ-compliant AT1 and Tier 2 capital instruments.)
• The "notification" process, proposed to replace the current non-objection process, which banks must follow to issue RBNZ-compliant AT1 and Tier 2 capital instruments

Related Links

• News Release
• Exposure Draft of Revised Handbook
• Executive Summary of Consultation (PDF)
• Consultation Paper (PDF)
• Restructure of Banking Supervision Handbook
• Capital Review Go-To-Guide (PDF)
• Letter to Banks, October 20, 2020 (PDF)

Comment Due Date: March 31, 2021

Keywords: Asia Pacific, New Zealand, Banking, Basel, Reporting, Regulatory Capital, Credit Risk, Market Risk, Operational Risk, RBNZ