New Zealand banks to face tighter capital adequacy requirements

The Reserve Bank of New Zealand is proposing that banks implement the Basel III capital adequacy requirements.

This create tighter adequacy requirements that New Zealand-incorporated banks will face.

The Basel III reforms aimed to strengthen the regulation, supervision and risk management of the banking sector, in light of the global financial crisis.

RBNZ deputy governor Grant Spencer said they would apply to all locally incorporated banks.

"The Reserve Bank is proposing to adopt most of the Basel III proposals into its standards, except for those that are less conservative than already in place, or that are not suited to New Zealand circumstances," he said.

A consultation paper said the total minimum capital requirement for New Zealand-incorporated banks would remain unchanged at 8 percent.

However, for Tier 1, the minimum capital requirement would rise from 4 percent to 6 percent, a larger portion of common equity would be required, and the criteria for inclusion in Tier 1 capital would be tightened.

The quality of Tier 2 capital would also increase and criteria for inclusion would be tightened.

The paper said the proposals would be implemented from Jan. 1, 2013, unless "there are compelling reasons for a phased approach."

A background statement said the RBNZ had "yet to reach a position on Basel III minimum requirements to ensure that all classes of capital instruments fully absorb losses at the point of non-viability, before taxpayers are exposed to loss."

For the source of this story, click here.