The Reserve Bank of New Zealand updated Parliament’s Finance and Expenditure Committee on measures intended to support stronger competition in banking and confirmed the Reserve Bank Board has agreed to an evidence-based review of key aspects of the deposit takers capital regime. It also said it will proceed with the scheduled 1 July 2025 increase in capital requirements via a 1% of risk-weighted assets increase in the Prudential Capital Buffer for all banks. Competition-related work highlighted included developing more proportionate prudential standards, launching the depositor compensation scheme, expanding access to the payments system, investigating a digital currency, and working with Council of Financial Regulators partners on system-wide initiatives such as a payments vision for New Zealand. The capital review will use independent international experts and build on ongoing work on more granular risk weights for residential mortgages and corporate (including rural) lending, community housing and whenua Māori lending, alongside development of a new crisis management framework. It will also consider submissions made to the inquiry, international comparisons, New Zealand’s risk appetite, proportionality, and the balance between going concern and gone concern capital including the role of Additional Tier 1. The Reserve Bank reiterated its longer transition to 2028 for higher capital requirements, including scheduled totals moving from 10.5% to 18% for Domestic Systemically Important Banks and from 10.5% to 16% for smaller banks, and said banks’ total capital levels are on average above 16%. The 1 July 2025 step-up would take total requirements to 14.5% for D-SIBs and 12.5% for other banks, with the review to be conducted promptly so any changes can be signalled ahead of the next scheduled increase and to minimise impacts on implementation of the Deposit Takers Act.
Reserve Bank of New Zealand 2025-03-31
Reserve Bank of New Zealand orders review of bank capital settings and confirms 1 July 2025 capital buffer increase
The Reserve Bank of New Zealand informed Parliament's Finance and Expenditure Committee about initiatives to enhance banking competition and confirmed an evidence-based review of the deposit takers capital regime. The bank will proceed with a 1% increase in the Prudential Capital Buffer by 1 July 2025, and reiterated a gradual transition to higher capital requirements by 2028, with current bank capital levels averaging above 16%.