Submissions are welcome until July 31
The Reserve Bank of New Zealand is requesting that affected entities provide further feedback on the amended banking prudential requirement (BPR) documents, before it finalises the framework for the proposed mutual capital instrument.
“Banks registered in New Zealand must comply with a range of prudential requirements developed and supervised by the Reserve Bank of New Zealand – Te Pūtea Matua to promote financial stability,” RBNZ said in a statement. “These prudential requirements reduce the risk of a bank failing and protect New Zealanders from the economic and social costs if a bank failure were to occur.”
In December 2019, the central bank published the final decisions from the Capital Review, which included requiring banks to have larger buffers of Common Equity Tier 1 (CET1) capital, to mitigate the risk of negative economic and social costs associated with bank failure in New Zealand.
One unresolved issue from the review was to come up with a capital instrument for mutual banks which could qualify as CET1 capital. Mutual banks are currently limited in their options to raise CET1 capital due to their mutual structure, impacting their ability to grow and compete with non-mutuals that do not face similar constraints.
In response to the issue, RBNZ consulted two possible options for a mutual capital instrument from March to June, then based on the feedback, proceeded to develop an exposure draft, which sets out the proposed requirements for its preferred option.
“This new instrument will provide mutually owned banks with more flexibility for raising capital and will support our financial stability objectives by aligning shareholders’ financial interests with the performance of the bank,” RBNZ said.
“Submitters on the exposure draft consultation said they were pleased with our progression of this work and [were] generally supportive of our proposed design of the instrument. They requested some changes to both the requirements for the instrument and the structure of the banking prudential requirements (BPRs), which are addressed [in] our response document.”
Further feedback on the amended BPR documents will be accepted until July 31.
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