Grant Spencer gave a speech yesterday that flagged a review of capital requirements for banks to be completed by the first quarter of 2018.
He was careful not to specify that banks would be required to hold higher capital levels, but the mood music in the speech certainly suggested a more conservative approach that may involve banks having to hold more capital.
Regulators all over the world have forced banks to reduce their leverage and to hold more of their own equity to back each of their loans in the years since the Global Financial Crisis. One of the lessons was that banks and other lenders needed bigger buffers to deal with loan losses, particularly in the housing market, without requiring Government bailouts.
Spencer has previously said the review would not involve banks requiring less capital.
The end result of the review is important because higher capital requirements would inevitably slow bank lending growth as they look to improve their net margins and reduce their risks. That may take more steam out of the housing market and make it harder for the Government to encourage the private building of new houses in Auckland in particular.
He said the review would be guided by the principles of simplicity and conservatism.
"In broad terms, higher levels of capital will improve the soundness of the financial system as the likelihood of bank failures is reduced," he said.
"However, the capital regime may reduce the efficiency of financial intermediation if ratios are pushed too high or standards are made overly complex."
An initial issues paper to be released in April would outline the broad areas of the review, including the definition of capital or equity, how banks measure the risks they face (ie their risk weightings) and the minimum capital ratios and buffers.
Spencer said any detailed policy positions and options for changes to the capital framework would be outlined in further consultation papers later this year, and the bank aimed to finish the review in the March quarter of next year.
'Restart the contributions'
The debate over Bill English's proposal to extend the age of eligibility for New Zealand Super from 65 to 67 in 20 years time raged yesterday, with both Winston Peters and Andrew Little building up heads of steam on the plan.
Little focused his response on a repeat of his call for English to restart contributions to the New Zealand Superannuation Fund.
He said younger generations would have to pay for English's decision in 2008/09 to suspend contributions.
"That’s already a generation who have paid for their own education and who are looking at not being able to own their own home as well," he said, adding he hoped the issue would bring younger voters out to vote.
He rejected the suggestion that it was a mistake to borrow to invest in stock markets, saying the NZ Super Fund's returns had been superior to other managed fund managers and other investments, and the Government had been borrowing to buy other assets.
He also appeared to commit Labour to spending future surpluses on resuming contributions before other areas of spending or tax relief.
"The Super Fund ought to be a first and priority call on those future surpluses. We set that fund up for a reason. This idea that the cost of superannuation is increasing in the 2020s and 2030 is nothing new, we have all seen that coming. This government up to now had a different view. But we have got to resume those contributions to the NZ Super Fund as quickly as possible and we will do so," he said.
"We need to resume those contributions. The magnitude of saving the government is taking about in the bigger scheme of things is barely negligible."
Challenged again on the priority of NZ Super Fund contributions over other spending, he said: "You have to make a range of choices. But I said ‘a’ first call, not the only call, but a first call has got to be resuming those contributions to New Zealand Super."
Little said a Labour-led Government would borrow to resume contributions if it had to.
Have a great day. My apologies for the late delivery today. I am on the road this week, in addition to being in the final stages of preparations for the Newsroom Pro launch.