Central bank seeks feedback
The Reserve Bank (RBNZ) has opened consultation on the prudential capital requirements for deposit takers, seeking feedback on whether current rules are set at the right level to ensure financial stability while supporting competition.
“However, it’s essential we strike the right balance – protecting depositors and the wider economy, while supporting competition and economic efficiency,” RBNZ Governor Christian Hawkesby (pictured) said in a media release.
The consultation outlines two options for overall capital ratios, both materially reducing requirements compared with 2019 decisions.
On a media conference call, RBNZ officials emphasised that changes are not expected to trigger significant movements in lending or deposit rates, noting that the OCR and wholesale markets remain the dominant drivers, interest.co.nz reported.
Why the review is happening
The review was first announced in March by Reserve Bank board chair Professor Neil Quigley, following concerns raised by the Commerce Commission and Parliament’s Finance and Expenditure Select Committee around banking competition.
Quigley said the RBNZ’s new framework under the Deposit Takers Act gives it greater regulatory tools.
“Under the Deposit Takers Act, we will have stronger tools for supervision and crisis management, as well as additional capacity and capability as a regulator,” Quigley said. “That means we can responsibly ease capital requirements, while still protecting financial stability.”
RBNZ noted that current capital rules, introduced in 2019 and still being phased in, are among the highest of comparator countries.
Finance Minister Nicola Willis welcomed the consultation, saying high capital requirements may have been undermining competition and increasing borrowing costs.
“Since 2019, concerns have been raised that the Reserve Bank’s capital settings may be undermining competition and efficiency in our banking industry, increasing the cost of lending to New Zealanders, imposing excessive restriction on lending to important sectors such as agriculture and community housing, and creating headwinds for economic growth,” Willis said.
Benchmarking against global standards
To inform the review, RBNZ commissioned Oliver Wyman to benchmark New Zealand’s largest banks against international peers. The report found Tier 1 capital requirements here are high relative to other jurisdictions, though lower on some other measures.
While capital requirements can affect competition and economic growth, RBNZ expects any changes from the review to have only minor impacts on overall output or on New Zealand’s attractiveness to new entrants.
Minimum capital reduced for deposit takers
Alongside the consultation, RBNZ confirmed some policy decisions to support preparation for licensing under the Deposit Takers Act. This includes reducing the minimum capital requirement for deposit takers from $30 million to $5 million, lowering barriers to entry.
Next steps for submissions
Submissions on the consultation close on Oct. 3, with final decisions expected by the end of the year. Three international experts – Thorsten Beck, Elena Carletti, and John Vickers – will independently review and challenge the analysis before publishing their reports.
Hawkesby encouraged broad participation.
“We encourage all interested parties to share their views,” he said. “Robust, evidence-based feedback will help us make decisions that are in the best interests of New Zealanders, now and into the future.”
RBNZ will host a stakeholder webinar on Sept. 2, from 1pm to 2:30pm, to run through the consultation and answer initial questions.
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