Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

RBNZ wants to limit debt instruments available

RBNZ wants to limit debt instruments available to meet regulatory capital levels

By Paul McBeth

July 14 (BusinessDesk) - The Reserve Bank wants to remove certain debt instruments lenders use to raise funds which can then be deemed to meet regulatory capital levels set to avoid the event of a meltdown.

The central bank's second options and issues paper on a wide-ranging review of the system's capital framework proposes limiting common equity and preference shares as the only allowable instruments qualifying as Tier 1 capital, and long-term subordinated unsecured debt without triggers that freeze interest payments as Tier 2 capital. Other instruments would still be available for banks to use to fund their operations but wouldn't go towards the regulated capital levels.

"Given the dominance of parent entities as Tier 1 contingent debt issued by the big four banks, contingent debt appears to have been used as a substitute for ordinary shares," the Reserve Bank said. "The loss absorbing quality of ordinary shares is far greater than that provided by contingent debt, thus the quality of capital in the regime has arguably been harmed by as a result of accepting contingent debt as Tier 1 capital."

The Reserve Bank wants to complete a review of banks' capital settings by early next year, with six high-level principles: capital can readily absorb losses before they're passed on to creditors and depositors; capital requirements are set in relation to bank exposures; different methodologies to set capital needs don't create unduly different outcomes; capital requirements should be conservative compared to international lenders; the framework should be practical to administer; and the regime should be transparent.

The latest paper is seeking feedback specifically on what instruments should qualify as bank capital, which has seen a rise in the use of contingent debt after the global financial crisis and adoption of new international banking rules.

The Reserve Bank noted some of the smaller banks aren't able to issue new shares because of their capital structures, meaning they've had to use contingent debt in an expanding market, however, the current definition has meant certain types of banks have access to broader and cheaper capital options, which is "in part responsible for a somewhat uneven playing field".

The regulator's view is that it sees "little regulatory value in 'going concern' triggers and conversion" which introduce "considerable complexity" into the regime.

Submissions close at the end of the working day on Sept. 8.

(BusinessDesk)

ends

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Superu Report: Land Regulation Drives Auckland House Prices

Land use regulation is responsible for up to 56 per cent of the cost of an average house in Auckland according to a new research report quantifying the impact of land use regulations, Finance Minister Steven Joyce says. More>>

ALSO:

Fletcher Whittled: Fletcher Dumps Adamson In Face Of Dissatisfaction

Fletcher Building has taken the unusual step of dumping its chief executive, Mark Adamson, as the company slashed its full-year earnings guidance and flagged an impairment against Australian assets. More>>

ALSO:

No More Dog Docking: New Animal Welfare Regulations Progressed

“These 46 regulations include stock transport, farm husbandry, companion and working animals, pigs, layer hens and the way animals are accounted for in research, testing and teaching.” More>>

ALSO:

Employment: Most Kiwifruit Contractors Breaking Law

A Labour Inspectorate operation targeting the kiwifruit industry in Bay of Plenty has found the majority of labour hire contractors are breaching their obligations as employers. More>>

ALSO:

'Work Experience': Welfare Group Opposes The Warehouse Workfare

“This programme is about exploiting unemployed youth, not teaching them skills. The government are subsidising the Warehouse in the name of reducing benefit dependency,” says Vanessa Cole, spokesperson for Auckland Action Against Poverty. More>>

ALSO:

Internet Taxes: Labour To Target $600M In Unpaid Taxes From Multinationals

The Labour Party would target multinationals operating in New Zealand to ensure they don't avoid paying tax if it wins power and is targeting $600 million over three years through a "diverted profits tax," says leader Andrew Little. More>>

ALSO: