The Reserve Bank has started a public consultation about what type of financial instruments should qualify as bank capital.

Capital regulations address not only the minimum amount of capital that banks must hold, but also the type of financial instruments that qualify as capital. The consultation that starts today is about the nature of financial instruments that are suitable, rather than the amount of capital.

Important considerations for regulations about bank capital include: the Reserve Bank’s regulatory approach; the resolution regime in the event of a bank facing difficulties; international standards issued by the Basel Committee on Banking Supervision; the Reserve Bank’s experience with the current capital regime; and the fact that dominant participants in the New Zealand banking market are subsidiaries of overseas banks. The consultation paper discusses these issues and outlines five options for reforming existing regulations.

The Bank’s proposed reforms to capital regulations aim to reduce the complexity of the regulatory regime; provide greater certainty about the quality of capital that banks hold; and reduce the scope for regulatory arbitrage.

The consultation closes at 5pm on Friday 8 September. More information:· Consultation paper: What should qualify as bank capital? Issues and Options· Review of the capital adequacy framework for registered banks

|A RBNZ article  ||  July 14, 2017   |||