Source: Reserve Bank of New Zealand
07 December 2022 – Following a public consultation, we have identified our preferred policy option for mutual banks to issue capital instruments.
In December 2019, we published the final decisions from the Capital Review, which focused on improving the quality and quantity of capital banks are required to have. A key decision from the Review was to require banks to have larger buffers of Common Equity Tier 1 (CET1) capital, which is the highest quality of capital and the most effective at supporting financial stability. This helps reduce the risk of having to deal with the negative economic and social costs associated with bank failure in New Zealand.
One unresolved issue from the Capital Review was a request for a capital instrument for mutual banks which could qualify as CET1 capital. Mutual banks, which are collectively owned by their members (or customers), are currently limited in their options to raise CET1 capital due to their mutual structure. This impacts the mutual banking sector’s ability to grow and compete with other, non-mutual banks that do not face similar constraints.
In response to this issue, we consulted on two possible options for a mutual capital instrument from March to June 2022.
“We have had positive engagement with the industry on this issue, and we thank them for their feedback,” Director of Prudential Policy Kate Le Quesne says.
Following consideration of the feedback received, we are proceeding with our preferred option — a Mutual Equity Tier 1 (MET1) capital instrument. This new instrument will provide mutually owned banks with more flexibility for raising capital and will support our financial stability objectives by aligning shareholders’ financial interests with the performance of the bank, Ms Le Quesne says.
This option balances our policy objective of providing mutual banks with another avenue to raise CET1 capital, with our overarching financial stability objectives.
We have now published an ‘exposure draft’ of the amended Banking Prudential Regulations for further feedback. We are inviting submissions from all interested parties until 31 March 2023.
We have also published a document detailing our response to submissions received on our consultation, and a regulatory impact assessment that details our policy process and analysis behind this decision.
How to make a submission
We are inviting submissions on the Capital Instruments for Mutual Banks ‘exposure draft’ consultation until 31 March 2023.
Find out more about the consultation and have your say https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=2618c70b76&e=f3c68946f8
Capital Instruments for Mutual Banks being considered, March 2022 https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=dc47d43a6e&e=f3c68946f8
Capital requirements for banks in New Zealand https://govt.us20.list-manage.com/track/click?u=bd316aa7ee4f5679c56377819&id=b336ba5699&e=f3c68946f8