The Reserve Bank of New Zealand is considering a sharp hike to the level of capital that bank owners must contribute to their businesses, in a move designed to reduce the chance of banks failing in a financial crisis.
The central bank on Friday said it proposed to almost double the amount of “high quality capital” banks have to hold. While the new requirements would vary across banks, the proposal would broadly mark a 20 per cent to 60 per cent increase in banks’ capital, representing about 70 per cent of the sector’s profits over a five-year transition period.
Insisting shareholders have a greater stake in the banks would incentivise them to make sure banks are well managed, and having owners absorb a greater share of losses if the bank failed provided stronger protection for depositors, RBNZ deputy governor Geoff Bascand said.
“With these changes we estimate the banking system will be resilient to shocks that might occur only once every two hundred years”, Mr Bascand said.
Australian-listed ANZ Bank, one of New Zealand’s biggest lenders, said in a statement it was reviewing the RBNZ’s consultation paper.
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