Given its importance, we have been undertaking a review of the optimal level of capital for the New Zealand system. We conclude that more capital is better. We are sharing our work with the banking sector and public, and expect to hear one side of the story loud and clear, that capital costs banks.
We need to hear a broader perspective than that, to best reflect New Zealand’s risk appetite. What have we done in practice? The Reserve Bank needs to ensure there is sufficient capital in the banking “system” to match the public’s “risk tolerance”.