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RBNZ consults on capital adequacy review

NZN 1/05/2017 Paul McBeth

The Reserve Bank is seeking feedback in the first round of a review testing the capital settings lenders operate under to maintain a robust business.

The central bank wants feedback primarily on the definitions of types of capital used to absorb losses, the frameworks used to measure risks, and whether banks have large enough buffers.

Submissions on a series of questions are open until the close of business on June 9 with detailed policy proposals expected to be released later this year and the review wrapped up in early 2018.

The RBNZ review has six high-level principles: capital can readily absorb losses before they're passed on to creditors and depositors; capital requirements are set in relation to bank exposures; different methodologies to set capital needs don't create unduly different outcomes; capital requirements should be conservative compared to international lenders; the framework should be practical to administer; and the regime should be transparent.

"As the review is in its early stages the Reserve Bank has not yet formed a view on the final calibration of capital requirements," the paper said.

"However, in broad terms our aim is to agree a capital regime that maintains a very high level of confidence in the solvency of the banking system, while avoiding unnecessary economic inefficiency."

Deputy governor Grant Spencer signalled the review was coming in a speech in March, saying the aim was to create a regime that inspires a very high level of confidence in the solvency of the banking system.

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