Hon Nicola Willis
Minister of Finance

The Reserve Bank’s decision to review its capital requirements has been welcomed by Finance Minister Nicola Willis.

“Submissions made to the finance and expenditure committee’s banking inquiry have raised concerns that New Zealand’s bank capital regime is too conservative, and that this is undermining banking competition, driving up the cost of lending and reducing growth in the New Zealand economy.

“I share these concerns and welcome the Reserve Bank Board’s decision to conduct an evidence-based review of its capital regime, using international experts, and comparing New Zealand’s requirements with those in comparable countries.

“It’s important that the Reserve Bank’s prudential regime preserves the stability of our financial system, while taking care not to not impose excessive costs in the process.

“Higher capital requirements increase the cost of borrowing. This can reduce economic activity and drive up the cost of living. I want to see settings that preserve financial stability while encouraging investment, job creation and income growth.

“Submitters have argued that other countries have less onerous bank capital requirements and that New Zealand is becoming an outlier internationally.

“The Reserve Bank’s decision to conduct a prompt review is a good opportunity to objectively assess New Zealand’s settings and consider whether the Bank’s intention to keep increasing capital requirements still makes sense.”

The Reserve Bank increase in minimum capital requirements followed a review in 2017-2019 and is being implemented over seven years with annual increases on 1 July each year.

The big banks are currently required to maintain minimum capital of 13.5 per cent and the smaller banks minimum capital of 11.5 per cent. The Reserve Bank has been planning to, by 2028, lift those requirements to 18 and 16 per cent respectively.

“I welcome the Reserve Bank’s willingness to step back and consider whether decisions it made several years ago are still in step with domestic and international developments.”

Decisions about bank capital requirements are taken independently by the RBNZ Board in accordance with the Bank's financial stability objective.

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