Reserve Bank of NZ to unveil new capital rules for banks in December

The Reserve Bank of New Zealand will unveil its new capital rules in the first week of December.

The Reserve Bank of New Zealand will unveils its new capital rules for banks in December. Picture: Bloomberg

The Reserve Bank of New Zealand will unveil its new capital rules in the first week of December, with implementation to take “a number of years” starting from next April.

The RBNZ firmed up its timeline on Tuesday after releasing assessments by three independent experts of the soundness of the reform process, which could require a $NZ19bn ($17.75bn) top-up in tier-one capital for the NZ units of the four Australian major banks.

The findings, which were exclusively revealed in The Australian online, included a bold proposal by Macquarie University senior finance lecturer James Cummings to remove the right of the big four to determine their own capital requirements if further analysis showed the sophisticated internal models of large banks failed to more accurately predict credit losses than the “standardised” industry approach.

RBNZ deputy governor Geoff Bascand said each independent reviewer had signalled their support with the direction proposed in the capital review.

“They all acknowledged the quality of analysis underpinning our proposals, the transparency of our process, and the care we have taken to consider the points raised by submitters during the consultation process to date,” Mr Bascand said.

“We are continuing our work on some technical suggestions made by the experts, as well as finalising our decisions and ultimate review.”

Mr Bascand said responses to the experts’ reports and submissions on the fourth consultation paper, called “How much capital is enough”, would be published along with the RBNZ’s final decision. Further work, he said, would be undertaken on the definition of capital and the processes for determining the level of risk-weighted assets.

Cost and benefit estimates of the proposals would be refined, and further consideration would be given to the possible impact on interest rates. The central bank would also assess the impact of executive incentives on the various groups that made up the financial system.

ANZ Bank, as the owner of the biggest bank in NZ, has the most to lose from the RBNZ’s desire to insulate the local banking system from a once-in-200-years crisis.

Chief executive Shayne Elliott has said the central bank is seeking “a very gold-plated bank insurance policy”.

“That’s OK, but somebody has to pay the premium, and we’re saying that some of the payment will have to come from the NZ community — our customers,” he said. “The rational thing for banks to do in the new environment is to look at their businesses and say: ‘Hey, in this new world, some of our businesses are destroying value and uneconomic, and we can’t keep doing that.’

“It might be a customer we say no to, it might be a business line, but I think it would be disingenuous for us to say that everything will stay exactly as it is.”