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Reserve Bank Launches Consultation To Implement Capital Review Changes

The Reserve Bank is launching a consultation on the details for implementing the final Capital Review decisions announced last December.

In December 2019 the Reserve Bank made decisions to gradually raise bank capital requirements to make the banking system safer. These increases were meant to start in 2020, but have been delayed to allow banks continued headroom to respond to the economic shock of COVID-19. Increases in the required level of capital will commence from 1 July 2022. Other Capital Review decisions are due to be implemented from 1 July 2021 onwards.

“The Reserve Bank has adjusted implementation plans and is today publishing consultation material on the detailed rules to provide certainty and clarity to industry and other stakeholders on the future capital framework. This is so that banks can plan their future funding and lending strategies, and continue to support the economy,” Reserve Bank Deputy Governor and Head of Financial Stability Geoff Bascand says.

The Reserve Bank is not seeking feedback on December 2019 policy decisions – the scope for the consultation is limited to the way the Reserve Bank proposes to implement the decisions. We are consulting on the detailed rules, including the new rules for instruments that make up a bank’s capital, and the framework setting out responses the Reserve Bank 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 are detailed further in the consultation paper published today called: ‘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-organise and clarify the existing Handbook documents. This was one of the key areas for improvement identified during a Regulatory Stocktake that the Reserve Bank undertook in 2015.

The creation of the Banking Prudential Requirements is a significant piece of work and the Reserve Bank appreciates the engagement with banks to-date on this process.

The consultation period will run until 31 March 2021. The Reserve Bank will consider all feedback from stakeholders before finalising the Banking Prudential Requirements, from 1 July 2021 onwards.

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