Move marks a stride towards greater financial stability
The Reserve Bank’s assessment of the first two years following the 2019 Capital Review has revealed all banks have met the escalating capital requirements.
“Higher capital is helping to increase banks’ resilience to shocks, as well as their capacity to absorb losses, and lifting financial stability in New Zealand,” the RBNZ said in its latest bulletin.
The initiative aims to fortify the banking system, ensuring it’s better prepared for financial uncertainties.
Gradual increase in capital requirements
With the goal of enhancing bank stability, the Capital Review sets forth capital requirements reaching up to 18% of risk-weighted assets for larger banks and 16% for smaller ones.
“A detailed assessment...concluded that the benefits of increased resilience in the financial system would exceed the costs,” RBNZ said.
Key findings from the RBNZ bulletin
The RBNZ bulletin outlined significant findings, including the successful compliance by Domestic Systemically Important Banks (DSIBs) with increased capital buffers in 2022 and 2023.
Banks have strategically raised their capital through retained earnings and new capital instruments. Furthermore, the initial cost implications are aligning with prior estimates, showing no signs of financial market disruptions due to the new requirements.
“We have not found any evidence of financial market disruptions from changes to capital requirements,” RBNZ said.
Looking ahead
The smaller banks, yet to face new requirements, are poised to meet their upcoming capital increases from July.
RBNZ projects the full effects of the Capital Review to materialise by 2028, with the next assessment slated for two years from now, continuing to monitor and guide the banking sector towards enduring stability and resilience.
Read the RBNZ media release here.
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