The European sovereign crisis has demonstrated that banks must have adequate capital and long-term funding to ensure survival in tough times. Following the GFC, international regulators have agreed to bolster the minimum capital adequacy and liquidity requirements of banks, as set out under the “Basel III” proposals on prudential standards.
The Reserve Bank expects these new standards to be broadly applied to the New Zealand system, with some tailoring for local circumstances. The sovereign debt crisis in part owes its origin to government assistance, sometimes specifically for institutions judged “too big to fail”, or more broadly in the form of guarantees to wholesale and retail investors.