The Reserve Bank of New Zealand has reaffirmed its direction to banks to lengthen the maturity of their foreign funding and to raise more from local retail sources. Lengthening their offshore funding and raising more from 'Mums and Dads' here in New Zealand would leave the banks less vulnerable to a freeze or crisis on international wholesale markets, the banking system regulator said.

Deputy Governor Grant Spencer told a news conference after the Reserve Bank released its half yearly Financial Stability Report that the banks had not improved their vulnerability much since the beginning of the global financial crisis last year. New Zealand's banks still have more than 40% of their international funding maturing in less than 90 days.

"There hasn't been a major movement in that because the banks came into the crisis with a relatively high proportion of short term funding and once you get into the crisis the term funding is harder to get so it's hard to correct that imbalance during the difficult period," Spencer said.

"In the longer term we would expect an improvement, with a greater proportion of long term funding and retail funding relative to short term funding," he said.

"We can't expect them to correct it immediately when the markets are very tight and the term funding markets continue to be expensive and funds are hard to get."

The Reserve Bank's Head of Prudential Supervision, Toby Fiennes, said the bank was in the final stages of formulating a new policy on bank liquidity after consulting with banks. It was likely to announce a new policy in late May.

"The key thing will be the core funding ratio which we'll be bringing in. The liquidity policy went out for consultation in December. We've been recalibrating that core funding ratio with them. We should be in a position later this month to release the policy finally," Fiennes told the news conference.

"It's going to have the same shape and structure we consulted on, but it will have some recalibration of the numbers and the criteria. We're looking to set a minimum ratio for core funding as a percentage of their longer term assets. The core funding ratio is the retail deposit base and the longer term wholesale funding as a percentage of assets," he said.

"It's 60/70% at the moment and (we would like it be) north of that."

Spencer went on to say that banks had their own core funding limits.

"But this is one of those areas where there's a difference in the risk between each of the individual banks vs the whole system. When you put it all together in the whole system a high proportion of short term funding becomes more of an issue because all of the banks in the country were going into the trough at the same time," Spencer said.

"That's why we think there are grounds for a policy intervention to lengthen those liabilities."