RBNZ shuns bank capital framework review idea

THE Reserve Bank disagrees with the Commerce Commission’s belief that banks’ high capital requirements need to be reviewed again to improve banking competition.

In the commission’s draft report into banking competition, it said banks’ capital requirements were the ‘‘most significant regulatory barrier’’ and hurt competition by making it harder for new players to enter the market and grow.

But in its submission, the

Reserve Bank (RBNZ) took a different stance.

The central bank disagreed with the commission’s view and its recommendation for another look at the rules around capital requirements, RBNZ deputy governor Christian Hawkesby said. ‘‘The current bank capital framework is the result of a careful and extensive review process that occurred recently and is still being phased in,’’ Mr Hawkesby said.

‘‘The review included consideration of competition, and resulted in several changes to support levelling the playing field between large and small banks, while preserving the risk sensitivity of capital requirements.’’ When the Reserve Bank last looked at banks’ capital requirements, the big four Australianowned banks — ANZ, ASB, BNZ and Westpac — were told to raise the amount of capital they held from 10.5% of their loans to 18%.

Smaller banks would have to hold a minimum of 16% of capital.

Mr Hawkesby also warned changes to its riskweighting rules would only lead to ‘‘very marginal benefits to competition, and could have unintended consequences and put us out of step with international regulatory approaches’’.

The RBNZ agreed open banking would help competition.

‘‘Combined initiatives like open banking, easier switching and multibanking, and improved financial literacy are likely to be mutually reinforcing,’’ Mr Hawkesby said.

‘‘Easier switching and multibanking will make it easier for consumers to move to providers offering innovations through more open banking. ‘‘But these issues are complex and will require clear leadership, direction and prioritisation from government and industry, and resourcing to deliver. We are keen to be part of these efforts,’’ Mr Hawkesby said. — RNZ