Implementation of Basel II capital rules

18 March 2005

Implementation of Basel II capital rules in New Zealand

The Reserve Bank of New Zealand today announced that it will allow both the "Internal Ratings Based" and "Advanced Measurement" Approaches in the implementation of the Basel II capital framework in New Zealand. The use of these approaches will be available only to banks that meet certain criteria.

Basel II is a new international framework for assessing whether banks are holding sufficient capital for the risks they are taking.

Reserve Bank Deputy Governor Adrian Orr said "The majority of banks in New Zealand are owned by banks in other countries. In particular, the four largest banks in New Zealand - Westpac, ANZ National Bank, BNZ and ASB - are all owned by banks based in Australia and supervised by the Australian Prudential Regulation Authority (APRA).

"We are working closely with APRA throughout the Basel II implementation process.

"This initiative is an important example of the Reserve Bank's enhanced home-host regulatory relationship with APRA, necessitating cooperation, coordination and mutual recognition of regulatory effort."

Posted on the Reserve Bank's website (www.rbnz.govt.nz) is a letter to all banks about the Reserve Bank's decision and a Terms of Engagement between the Reserve Bank of New Zealand and the Australian Prudential Regulation Authority. This establishes high-level principles for the cross-border implementation of Basel II in Australia and New Zealand.

ENDS

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