New Zealand Banks’ Vulnerabilities and Capital Adequacy
IMF Working Papers, January 11, 2013
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- New Zealand Banks’ Vulnerabilities and Capital Adequacy
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Bibliographic details
- Authors: B. Jang, Masahiko Kataoka
- Published: January 11, 2013
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475561371.001
Main findings
- Given New Zealand’s conservative approach in implementing the Basel II framework, New Zealand banks’ headline capital ratios underestimate their capital strength.
- A comparison with Canadian, UK and Australian banks highlights the impact of New Zealand’s more conservative approach.
- Stress tests 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.
- Combined shocks to both residential mortgages and corporate lending would put more pressure on the banks’ capital.
- High bank concentration and large offshore wholesale funding needs increase systemic vulnerability.
Stress test scenarios and outcomes
- Stand-alone shocks:
- Residential mortgage shock calibrated on the Irish crisis experience — four large banks resilient to sizable shocks.
- Corporate lending shock — four large banks resilient to sizable shocks.
- Combined shocks:
- Simultaneous shocks to residential mortgages and corporate lending — materially greater capital pressure on banks.
Policy implications and recommendations
- Consider the merits of higher minimum capital requirements for systemically important domestic banks.
- Consider other complementary measures to address vulnerabilities associated with high bank concentration and large offshore wholesale funding needs.
Publication and metadata
- Authors: B. Jang, Masahiko Kataoka
- Publication date: January 11, 2013
- Series: Working Paper No. 2013/007
- Issue: 007
- Volume: 2013
- Pages: 23
- DOI: https://doi.org/10.5089/9781475561371.001
- ISBN: 9781475561371
- ISSN: 1018-5941
Subjects and keywords
- Subject: Banking, Basel II, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Loans, Nonperforming loans, Residential mortgages
- Selected keywords: asset quality, Australia and New Zealand, bank, bank asset composition, bank asset quality, bank market share, bank profit, banks' provision, Basel II, capital, Capital adequacy requirements, capital ratio, disclosure statement, Global, LGD rate, Loans, loss given default, mortgage, Nonperforming loans, parent bank, probability of default, Residential mortgages, risk weight, stress tests, Tier 1, WP
Source: IMF Working Paper "New Zealand Banks’ Vulnerabilities and Capital Adequacy", Working Paper No. 2013/007, January 11, 2013.