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Reserve Bank warns consultation on bank capital ending

Reserve Bank warns consultation on bank capital ends this week

By Jenny Ruth

May 13 (BusinessDesk) - The Reserve Bank says it has received 90 formal submissions on its proposal to near double the minimum amount of tier 1 capital banks have to hold and is warning that submissions close this Friday.

Meanwhile, ASB Bank’s Australian parent, Commonwealth Bank of Australia, says in its third-quarter update that it estimates ASB will need about $3 billion more capital under the current proposals.

The central bank is proposing to lift the minimum common equity requirement to 16 percent of risk-weighted assets from 8.5 percent currently – New Zealand banks on average have about 12 percent tier 1 capital at present.

It is also proposing to limit the advantage the big four Australian-owned banks get from using their own internal models for calculating how much capital they need. The other banks have to use standardised models.

The Reserve Bank says the changes will limit the likelihood of a bank collapsing to one in 200 years.

“The soundness and efficiency of our banking system is one of the most critical factors in ensuring New Zealand’s sustainable economic wellbeing. This is an important policy and we welcome views from all quarters,” deputy Reserve Bank governor Geoff Bascand says in a statement.

“If implemented, the proposed change would ensure that bank shareholders have a meaningful stake in their bank, so that they absorb a greater share of losses their bank might face during financial and economic shocks," the Reserve Banks says.

It plans to make submissions public in June and reiterated that final decisions are expected in the third quarter of 2019 “after submissions and other evidence have been analysed.”

(BusinessDesk)

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