Academic journal article The Reserve Bank of New Zealand Bulletin

Reserve Bank Works toward New Rules on Bank Capital: 10 April 2006

Academic journal article The Reserve Bank of New Zealand Bulletin

Reserve Bank Works toward New Rules on Bank Capital: 10 April 2006

Article excerpt

Capital requirements for banks will soon be made more sensitive to the risks the banks are taking, under new rules being implemented by the Reserve Bank.

Speaking at the Retail Financial Services Forum, Deputy Governor Adrian Orr said that the Reserve Bank was working intensively on the implementation of the new international framework for bank capital adequacy, known as Basel II.

'Bank capital represents the owners' stake in the business and a platform for the bank's future growth and innovation," Mr Orr said. "For the stability of the financial system, banks need to hold capital above certain minimum levels at all times, in order to absorb unexpected losses associated with ups and downs in the economy, including severe stress events.'

The Reserve Bank's implementation of Basel II is focused on making bank capital requirements more sensitive to risk, and particularly risks specific to the New Zealand environment. 'These include the exposure of the economy to international commodity markets, and the high concentration of housing loans in New Zealand bank portfolios,' Mr Orr said.

Basel II is not intended to lead to large changes in the level of capital in the banking system overall. …

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