“Adequate capital is the first and most powerful defence for banks to survive unwanted shocks. New Zealand banks face both global and New Zealand-specific risks, so our capital requirements need to reflect this,” said Governor Adrian Orr.The in-principle decisions announced today are designed to bolster how much capital banks need to hold, make it easier for investors to assess capital adequacy, and to minimise any unintended competitive advantages. “We are ensuring that our capital requirement rules align with international standards while being fit for the New Zealand-specific context. We also want to ensure we are being fair to both large and small banks, and avoid creating unintended competitive advantages. Importantly, all banks must have ‘enough skin in the game’ to truly focus on enterprise risk management, responsible lending, and the ability to weather all events,” Mr Orr said.The in-principle decisions announced today will require the four largest banks to report using both their own risk models as well as the standardised frameworks the other banks use. This will help shine light on whether the big bank’s risk estimates are appropriate.The next phase of the Capital Review will be a quantitative impact study of the in-principle decisions made so far by the Reserve Bank. The final phase will address the setting of minimum capital ratios. The Reserve Bank aims to conclude the key elements of the Capital Review in 2018.More information· The calculation of risk weighted assets: Response to submissions· Review of the capital adequacy framework for registered banks