New Zealand’s major banks have urged lawmakers to reassess the Reserve Bank of New Zealand’s (RBNZ) capital requirements, arguing that the rules may be restricting competition and driving up borrowing costs.
Speaking at a parliamentary inquiry into banking competition on Monday, executives and chairs from three of the country’s largest banks said the current capital settings—designed to withstand a one-in-200-year financial shock—were too stringent.
“We have capital settings that have been set on the basis of a one-in-200-year expected event. That is an extremely conservative setting. The debate for everybody—banks, you as ultimately the lawmakers, the regulators—is what is the appropriate level going forward,” Bank of New Zealand chair Warwick Hunt said.
Hunt noted that Australia’s regulatory framework is based on a one-in-100-year event. New Zealand’s four largest banks are all Australian-owned.
The discussion follows Finance Minister Nicola Willis’ move to review bank capital requirements, citing potential impacts on economic productivity and growth. It also comes in the wake of the unexpected resignation of RBNZ Governor Adrian Orr, who championed the stricter capital rules when they were introduced in 2019 but were delayed due to the pandemic.
Implementation for the capital requirements began in mid-2022 and is being phased in over seven years, with final targets set for 2028. However, most banks are ahead of schedule in meeting these requirements.
ASB Bank chair Therese Walsh told the committee that the current capital levels were “about right.”
She said ASB had supported increasing capital requirements in 2019 but questioned whether they needed to be as high as the RBNZ had proposed. The challenge, she said, was ensuring financial stability without imposing regulatory burdens that drive up costs and limit competition.
“Where is that sweet spot in terms of safety and security for the banking system because you know that that’s where we want to be? About today, roughly speaking, is kind of where we think you find that moment,” Walsh said.
ANZ Bank New Zealand Ltd. chief executive Antonia Watson also called for a reassessment of the risk weights applied to lending, arguing that they should not be disproportionately conservative compared to international standards.
“We’ve chosen a one-in-200 year event. Is that the level of financial stability we want? That’s not a question for us. It’s a question for you and our regulators,” Watson told the committee.
