Finance Minister Nicola Willis has welcomed the Reserve Bank's decision to review its capital requirements, citing concerns that New Zealand's regime is too conservative.
The Reserve Bank's move follows submissions made to the finance and expenditure committee's banking inquiry, which highlighted the impact of high capital requirements on lending costs and economic growth. According to Finance Minister Nicola Willis, other countries have less onerous bank capital requirements, making New Zealand an outlier internationally.
The review will compare New Zealand's capital regime with those in comparable countries and assess whether increasing capital requirements still aligns with financial stability objectives. The Reserve Bank's decision is seen as a positive step towards re-evaluating its prudential framework.
The Reserve Bank's current minimum capital requirements for big banks are 13.5 per cent, set to increase to 18 per cent by 2028. Smaller banks have a minimum of 11.5 per cent, which will rise to 16 per cent by the same date. The review aims to strike a balance between preserving financial stability and promoting economic growth. Decisions about bank capital requirements are made independently by the Reserve Bank Board in accordance with its financial stability objective.