WELLINGTON, Feb. 26 (Xinhua) -- Increasing the amount of capital banks hold will improve the safety of New Zealand's financial system and economic wellbeing, Reserve Bank of New Zealand Deputy Governor Geoff Bascand said on Tuesday.
The Reserve Bank is currently consulting on a proposal to raise the minimum amount of capital that banks must hold, Bascand said in a speech hosted by the Institute for Governance and Policy Studies at Victoria University in Wellington.
"Ensuring the soundness and efficiency of New Zealand's banking system is a core responsibility of the Reserve Bank," Bascand said, adding that the proposal aims to make bank failures less likely, ensure that bank shareholders have a meaningful interest in their bank's business, and are able to absorb a greater share of any loss if they occur.
New Zealand has experienced two banking crises in its modern economic history and a wide variety of finance company failures and near misses, he noted, saying there has also been more than 140 banking crises around the world since the 1970s, and the social and economic costs of these failures is severe in terms of unemployment, health and the quality of life.
"We are proposing to make New Zealand's banks safer by requiring them to use more of their own money to manage through good times and bad," he said, adding that more shareholder equity reduces the costs and risks for depositors and taxpayers if something go wrong.
"Capital is the single most important feature of the financial sector's regulatory tools. Other tools such as disclosure and transparency requirements, governance and risk management practices, and regulator supervision all work better when bank owners have more skin in the game," Bascand said.
The consultation will close on May 3 and the Reserve Bank will consider all feedback before issuing final decisions in the third quarter this year, he added.