RBNZ delays new capital rules

The central bank has taken steps to protect the financial system amid the ongoing pandemic, and has delayed the new capital rules by one year, until July 2021. 

The decision comes alongside the RBNZ's move to cut the official cash rate by 75 basis points this morning. 

RBNZ deputy governor Geoff Bascand said: “To support credit availability, the Bank has decided to delay the start date of increased capital requirements for banks by 12 months – to July 1, 2021. Should conditions warrant it next year, the Reserve Bank will consider whether further delays are necessary.”

“We are taking this action now to help support lending in the economy at a time when there is a lot of uncertainty. The Reserve Bank’s expectation is that banks will utilise this flexibility to maintain lending to households and businesses. Banks have significant buffers above current regulatory minimums, and we encourage them to use them,” Bascand said.

“Deferring the capital framework implementation provides banks with significant capital headroom. We estimate that this headroom will enable banks to supply up to around $47 billion more lending than would have been the case, had the decisions been implemented as planned.”

In a statement, the Reserve Bank said it was "currently identifying other regulatory initiatives that can be deferred, to reduce the burden on financial institutions at this time of uncertainty”.

Assistant Governor Christian Hawkesby said the Bank is keen to ensure there is sufficient liquidity in the financial system.

“The Bank has a number of operational tools at its disposal to support liquidity and market functioning in New Zealand. This has helped the domestic cash market and foreign exchange swap market to continue to function effectively over recent weeks,” Hawkesby says.

“Banks currently have robust liquidity and funding positions and can manage short-term disruptions to offshore funding markets. We will continue to monitor developments closely and engage regularly with market participants to ensure we are ready to provide support if needed.”