The Reserve Bank wants to complete its review of bank capital requirements before the end of the year but does not think it will necessarily recommend any changes.
Governor Christian Hawkesby said the central bank would go into the review “very open minded” and it would draw on evidence from the Commerce Commission's market study and the Finance and Expenditure Committee’s subsequent inquiry.
Government MPs in the select committee inquiry have been putting the spotlight on the Reserve Bank's capital requirements, claiming the strict rules are stifling banking competition and making credit harder for New Zealanders to access.
But Hawkesby said the review, which will involve international experts, would also draw on other analysis and evidence as some claims made in the inquiry “weren’t substantiated”.
“We've committed to reviewing the key capital prudential requirements. We haven't committed to any particular outcome from that review,” he told reporters on Wednesday.
Jess Rowe, the Reserve Bank's Director of Prudential Policy, said it was a good opportunity to combine new evidence and data, collected since the 2019 capital review, with other aspects of the capital regime.
Work had already been done making risk weights more granular and the bank had also consulted the sector on a crisis management framework related to the Deposit Takers Act.
“So, there are a range of components of the regime already in play, and … it's a really good time to put that all together. We are focused on making it short and sharp but robust, because we want to implement the [Act] within the timeframe we've committed to,” she said.
Another reason to move quickly is that retail banks must meet a higher capital requirement each July up to 2028. While the 2025 increase will proceed, the Reserve Bank said the review’s outcome could affect future targets.
The capital review terms of reference say the Reserve Bank will reassess its “appropriate risk appetite” in light of the updated Financial Policy Remit and the Minister of Finance’s letter of expectations, both of which call for greater focus on competition.
Leaders from several big banks told Parliament’s inquiry that capital buffers did need to be increased from 2019 levels but had been lifted far enough. They suggested the Reserve Bank could simply halt further hikes after this July, and still have a stable financial sector.
Finance Minister Nicola Willis has been won over by those who argue strict capital requirements push up borrowing costs and slow economic growth. She has been looking at ways to have the rules relaxed as part of her growth agenda.
An article published by Bloomberg on Wednesday said Willis sought a meeting to discuss capital rules with former Reserve Bank Governor Adrian Orr in the weeks before his sudden resignation.
Documents released to the news outlet also show the Minister asked the Treasury for advice on whether she had powers to direct the central bank to change its prudential policies.
Willis’ office asked several times for a meeting in the lead up to the February Monetary Policy Statement which Orr and his team refused, as they are not supposed to take meetings while actively considering interest rate decisions.
They ultimately agreed to meet on February 24, the week after the Monetary Policy Statement was released and just nine days before his abrupt resignation on March 5.
Separate reporting by the NZ Herald revealed Willis told her press team to keep the purpose of that February meeting a secret, and that Orr’s resignation was brought forward by five days for reasons still unknown.
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