Banks vs Reserve Bank

Stuff reports:

New Zealand’s are calling for the to rethink its plan to require them to hold more capital to help withstand financial shocks, claiming it risks putting “a handbrake” on the economy.
As well as setting the official cash rate (OCR), the Reserve Bank is tasked with maintaining a healthy banking sector. In December it proposed that retail banks should be required to hold enough capital to withstand a one in 200 year financial crisis in December.
Banks were expecting the Reserve Bank to propose some increase in capital levels, but not on the scale governor Adrian Orr proposed.

Such a move would require New Zealand’s banks to raise more than $20 billion to sit in reserve, a move which would make the banks safer, but also more expensive to run, which could ultimately impact customers.

Of course it will impact customers.

The NZBA has published a report by research organisation Sapere led by Scott which dismisses the Reserve Bank’s claims that the impact of the plan would be “minimal”.
Sapere warns the cost of the plan to the economy outweigh the benefits by $1.8 billion a year.

It will be interesting to see if the Reserve Bank modifies it plans.

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