An upcoming review of banks’ capital requirements will continue to ensure confidence in the solvency of the New Zealand banking system, while encouraging efficiency, Reserve Bank Deputy Governor Grant Spencer said today.
During a speech to the New Zealand Bankers Association in Auckland, Mr Spencer outlined the context and scope of the review of bank capital that the Reserve Bank will undertake over the next year. Mr Spencer also set out broad principles that will guide the Review, centred on simplicity and conservatism.
Mr Spencer said in the wake of the global financial crisis, banks and regulators around the world have been reviewing capital buffers for banks to maintain to guard against the risk of losses. He said it is a very complex area which is full of trade-offs, and the Bank plans to comprehensively assess whether New Zealand’s capital framework remains fit for purpose.
“In broad terms, higher levels of capital will improve the soundness of the financial system as the likelihood of bank failures is reduced. However, the capital regime may reduce the efficiency of financial intermediation if ratios are pushed too high or standards are made overly complex. An appropriate capital regime will ensure a very high level of confidence in the solvency of the banking system, while avoiding unnecessary inefficiencies.”
Mr Spencer said the Reserve Bank will outline the broad areas of the capital framework that will be examined in the capital review in an issues paper released in April. The capital review will explore the definition of capital, how banks measure the risks they face (e.g.: risk weights) and the minimum capital ratios and buffers.
“The issues paper will provide the opportunity for stakeholders to give preliminary views on the areas we intend to cover in the review, as well as identify any other issues in the capital framework that could be examined. Any detailed policy positions and options for changes to the capital framework would be outlined in consultation papers later this year. We aim to conclude the review by the first quarter of 2018.”
| A RSBNZ release | March 7, 2017 ||