While many in the market have taken a cynical attitude towards the consultation, believing bank governor Adrian Orr has already made up his mind, the central bank indicates its views might have shifted on how long the phase-in period will be.
It says implementation of any new rules will start from April 2020 with a transition of a number of years before banks will be expected to fully comply.
Previously, the Reserve Bank proposed a five-year phase-in period.
“The proposals are consistent with steps taken by other banking regulators after the global financial crisis,” deputy governor Geoff Bascand said.
That is contradicted by the Bankers’ Association’s submission, which includes an update from PricewaterhouseCoopers showing the proposals would effectively lift the big four banks’ common equity to 27.1% of risk-weighted capital.
While the Reserve Bank’s proposal is to near double the minimum common equity banks should hold from 8.5% to 16%, it takes a more conservative approach towards measuring capital, according to PwC.
“It is important that the public understands how higher levels of capital better protect their deposits,” Bascand says.
“It is pleasing to see stakeholders’ interest in the proposals reflected in the 164 responses received as well as in the feedback received through our briefings with banks, industry bodies, investors, the news media and social sector groups.”
So the Reserve Bank will continue its stakeholder outreach programme, which includes focus groups on how New Zealanders feel about risks in the financial system, how the risks might affect them and how the risks should be managed.”
An important part of the consultation involves seeking relevant information from industry and broader stakeholders to better understand costs and benefits, Bascand said.
In April the Reserve Bank said it hadn’t done a cost-benefit analysis and many observers have said that should have been the first thing it did.
“The proposals were designed around a net benefits framework where more capital was required up to the point that financial stability gains were matched by increases in costs,” Bascand says.
“Our policy development process is to develop policy options, lay out our thinking on the nature of the costs and benefits of the policy being consulted on, seek input from affected parties and produce a full cost-benefit around any modified proposals before making final policy decisions.”
Estimates of the costs of the policy vary.
The Reserve Bank has said it might raise the cost of borrowing by 20-40 basis points but UBS has estimated the cost at 80-125 basis points.
Others have arrived at estimates in between.
The Bankers’ Association estimates the cost at $1.8 billion a year.
The Reserve Bank says it is in the process of appointing external experts to independently review the analysis and advice underpinning its proposals. – BusinessDesk
