RBNZ outlines plans for bank capital review

During a speech to the New Zealand Bankers Association in Auckland today, the RBNZ Deputy Governor Grant Spencer said that the central bank is planning to outline a framework for bank capital review.

Key Points:

An upcoming review of the framework for banks’ capital requirements will aim to enhance the soundness and efficiency of the New Zealand banking system

“In the wake of the global financial crisis, banks and regulators around the world have been reviewing capital standards. It is a complex area with many aspects to consider. The Review will cover the definition of capital, the measurement of risks that the banks face and the minimum capital requirements and buffers.”

“Higher levels of capital would improve the soundness of the financial system by reducing the likelihood of bank failures. However, the capital regime could 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.”