1 Oct 2019

Independent experts support RBNZ's approach on bank capital

10:17 am on 1 October 2019

Three independent experts generally agree the Reserve Bank's approach to increasing the amount of capital banks should hold in reserve has been conducted with care and based on sensible and sound analysis.

Reserve Bank governor Adrian Orr.

Reserve Bank governor Adrian Orr. Photo: RNZ / Dom Thomas

The RBNZ commissioned three comprehensive reviews by noted economists from Australia, Britain and the United States, which looked at the central bank's proposals and rationale for raising bank capital requirements.

Submissions on the proposals indicated there was broad support from the general public, while banks strenuously argued the proposed increases would raise lending costs, which would in turn be passed on to consumers.

The Reserve Bank's reasoning was that better capitalised banks were good for society.

The central bank said it would consider the experts' comments and suggestions, ahead of its final decision in December.

It said it was looking at refining its estimates of the costs and benefits of the the various options and possible impacts on interest rates.

It would also consider the impact of incentives on various groups as well as additional analysis on how capital was defined and the processes used to determine the level of risk of various assets.

The independent reviews were conducted by economists James Cummings at Macquarie University in Australia, Ross Levine at the University of Berkeley in California and David Miles at the Imperial College in London.

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