Reserve Bank reveals new capital rules
Big four banks will be hit hardest by the new rules. The Aussie-owned giants will need to increase total capital from a minimum of 10.5% to 18%. Smaller banks will need to raise their minimum capital to 16%, the RBNZ said. They are expected to account for "hundreds of millions of dollars" of the extra $20 billion needed for the banking system, according to reports.
The rules take effect from July 1 next year and will be implemented over seven years. They are part of measures designed to make New Zealand's financial system more secure. The average level of capital currently held by banks is 14.1%, according to the central bank.
The final decision is close to initial proposals revealed this time last year. The proposals have been in a consultation period, and have been heavily criticised by the big four, but tentatively welcomed by smaller domestic banks, who hope to level the playing field. Currently, big banks are required to hold less capital aside than their smaller rivals.
Banks received a silver lining from today's announcement, as the Reserve Bank will allow lenders to use redeemable preference shares to count towards some of the additional capital required. The allowance means banks will rely less on raising new equity and retaining profits.
Click the button below to subscribe and will have free unlimited access for a limited time to full article and all other articles on the site.
You will also be able to comment on articles on Good Returns.
![[Weekly Wrap] KiwiSaver in play; but outcome unclear](https://goodreturns.publit.io/file/c_fill,w_300,h_200/0ad582e4-c9a3-4692-bbe2-62d928f77fd2.jpg)
