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

 

A safer banking system for all New Zealanders


Higher bank capital means safer banking system for all New Zealanders

5 December 2019

The Reserve Bank of New Zealand today released its final decisions following its comprehensive review of its capital framework for banks, known as the Capital Review.

Governor Adrian Orr said the decisions to increase capital requirements are about making the banking system safer for all New Zealanders, and will ensure bank owners have a meaningful stake in their businesses. The changes will be implemented over seven years, giving plenty of time for banks to manage a smooth transition and minimise any adjustment costs.

“Our decisions are not just about dollars and cents. More capital in the banking system better enables banks to weather economic volatility and maintain good, long-term, customer outcomes,” Mr Orr says.

“More capital also reduces the likelihood of a bank failure. Banking crises cause not only harmful economic costs but also distressful social issues, such as the general decline in mental and physical health brought about by higher rates of unemployment. These effects are felt for generations,” Mr Orr says.

The key decisions, which start to take effect from 1 July 2020, include banks’ total capital increasing from a minimum of 10.5% now, to 18% for the four large banks and 16% for the remaining smaller banks. The average level of capital currently held by banks is 14.1%.

Relative to the Reserve Bank’s initial proposals, the final decisions also include:

• More flexibility for banks on the use of specific capital instruments;

• A more cost-effective mix of funding options for banks;

• A lesser increase in capital for the smaller banks consistent with their more limited impact on society should they fail;

• A more level capital regime for all banks – with the four large banks having to measure the risks of their exposures (lending) more conservatively, more in line with the smaller banks; and

• More transparency in capital reporting.

The adjustments to the original proposals reflect our analysis and industry feedback over the past two years. All of these changes will be phased in over a seven-year period, rather than over five years as originally proposed, in order to reduce the economic impacts of these changes.

Deputy Governor and General Manager of Financial Stability Geoff Bascand says the decisions were shaped by valuable public input and insight received through an unprecedented number of submissions as well as public focus groups. Three international experts also provided supportive perspectives on the proposals.

“We’ve listened to feedback and reviewed all the data, and are confident the decisions are the right ones for New Zealand,” Mr Bascand says.

“We have amended our original proposals in a number of ways so we achieve a high level of resilience at lower potential cost, with a smoother transition path for all participants. Our analysis shows that the benefits of these changes will greatly outweigh any potential costs.”

“Following the Global Financial Crisis, many regulators around the world have been taking steps to improve the safety of their banking systems. We’re confident we have the calibrations right for New Zealand conditions. These changes will be subject to monitoring, with the Reserve Bank reporting publicly on implementation during the transition period,” Mr Bascand says.

More information:

Capital Review Go-to-guide (PDF 662KB)

Questions and answers (PDF 225KB)

Capital decisions (PDF 657KB)

Regulatory Impact Assessment / Cost Benefit Analysis (PDF 2.5MB)

Livestream of media conference at 1pm today.


ends


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

TradeMe: Property Prices In Every Region Hit New High For The Very First Time

Property prices experienced their hottest month on record in December, with record highs in every region, according to the latest Trade Me Property Price Index.\ Trade Me Property spokesperson Logan Mudge said the property market ended the year with ... More>>

Motor Industry Association: 2020 New Vehicle Registrations Suffer From Covid-19

Chief Executive David Crawford says that like some other sectors of the New Zealand economy, the new vehicle sector suffered from a case of Covid-19. Confirmed figures for December 2020 show registrations of 8,383 were 25% ... More>>

CTU 2021 Work Life Survey: COVID And Bullying Hit Workplaces Hard, Huge Support For Increased Sick Leave

New data from the CTU’s annual work life survey shows a snapshot of working people’s experiences and outlook heading out of 2020 and into the new year. Concerningly 42% of respondents cite workplace bullying as an issue in their workplace - a number ... More>>

Smelter: Tiwai Deal Gives Time For Managed Transition

Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed to working on a managed transition with the local community,” Grant Robertson said. More>>

ALSO:

OECD: Area Employment Rate Rose By 1.9 Percentage Points In The Third Quarter Of 2020

OECD area employment rate rose by 1.9 percentage points in the third quarter of 2020, but remained 2.5 percentage points below its pre-pandemic level The OECD area [1] employment rate – the share of the working-age population with jobs – rose ... More>>

Economy: Strong Job Ad Performance In Quarter Four

SEEK Quarterly Employment Report data shows a positive q/q performance with a 19% national growth in jobs advertised during Q4 2020, which includes October, November and December. Comparing quarter 4, 2020, with the same quarter in 2019 shows that job ad volumes are 7% lower...More>>

NIWA: 2020 - NZ’s 7th-warmest Year On Record

The nationwide average temperature for 2020, calculated using stations in NIWA’s seven-station temperature series which began in 1909, was 13.24°C (0.63°C above the 1981–2010 annual average). New Zealand’s hottest year on record remains 2016, when... More>>

Quotable Value New Zealand: Property Market Set To Cool From Sizzling To Warm In 2021

Nostradamus himself could not have predicted the strange series of events that befell our world in 2020 – nor the wild trajectory of New Zealand’s property market, which has gone from “doom and gloom” to “boom and Zoom” in record time. Even ... More>>