The Reserve Bank of New Zealand (RBNZ) reported earlier today that it is consulting on a proposal to raise the amount of capital that banks must hold.
RBNZ Deputy Governor and General Manager of Financial Stability Geoff Bascand noted further details on the plans of raising the bank capital.
“Insisting that bank shareholders have a meaningful stake in their bank provides a greater incentive to ensure it is well managed. Having shareholders able to absorb a greater share of losses if the company fails also provides stronger protection for depositors.”
“Bank crises happen more often than many people care to remember, and the economic and social costs of bank failures can be very high and persistent. These proposals are designed to make bank failures less frequent. With these changes we estimate the banking system will be resilient to shocks that might occur only once every two hundred years.”
“While borrowing costs may increase a little, and bank shareholders may earn a lower return on their investment, we believe these impacts will be more than offset by having a safer banking system for all New Zealanders.”
The NZD/USD pair is seen sinking 0.70% to 0.6800 levels in a delayed reaction to the above headlines.
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