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RBNZ seeks balance in banking review

NZN 7/03/2017 Rebecca Howard

New Zealand's central bank has announced a review of bank capital requirements to examine how well the current framework operates and to consider potential improvements.

"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," Reserve Bank Deputy Governor Grant Spencer said in a speech to the New Zealand Bankers' Association in Auckland on Tuesday.

"The review will cover the definition of capital, the measurement of risks that the banks face and the minimum capital requirements and buffer."

The aim is to agree to a capital regime that ensures a very high level of confidence in the solvency of the banking system, while avoiding unnecessary economic inefficiency, he said.

He underscored the Reserve Bank will consult the banks and the public on its findings and on any proposed changes to the capital framework.

The specific areas to be addressed will be outlined in an issues paper to be released in April.

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, said Mr Spencer.

Consistent with the objectives of the review, Mr Spencer said the central bank will adopt six high-level principles.

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