New Zealand Banksâ€™ Vulnerabilities and Capital Adequacy
The paper finds that, given New Zealandâ€™s conservative approach in implementing the Basel II framework, New Zealand banksâ€™ headline capital ratios underestimate their capital strength. A comparison with Canadian, UK and Australian banks highlights the impact of New Zealandâ€™s more conservative approach. Stress tests in the paper show that four large New Zealand banks could withstand sizable stand-alone shocks to their exposure to either residential mortgages (calibrated on the Irish crisis experience) or corporate lending. However, combined shocks to both residential mortgages and corporate lending would put more pressure on the banksâ€™ capital. Given high bank concentration and large offshore wholesale funding needs, the merits of higher minimum capital requirements for systemically important domestic banks could be considered, together with other measures to be implemented.
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- Kevin Hoskin & Stuart Irvine, 2009. "Quality of bank capital in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-16, September.
- Rodrigo Cubero & Ray Brooks, 2009. "New Zealand Bank Vulnerabilities in International Perspective," IMF Working Papers 09/224, International Monetary Fund.
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