Adrian Orr: Higher capital better for banking system and New Zealand

Notes from an address by Mr Adrian Orr, Governor of the Reserve Bank of New Zealand, to Business NZ CEO Forum, Auckland, 30 November 2018.

The views expressed in this speech are those of the speaker and not the view of the BIS.

The Reserve Bank is tasked with ensuring the banking system is both sound and efficient. To achieve our task we have a range of tools (see Table 1). The most important tool in our kit is ensuring banks hold sufficient capital (equity) to be able to absorb unanticipated events. The level of capital reflects the bank owners' commitment - or skin in the game - to ensure they can operate in all business conditions, bringing public confidence.

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.