(14 March 2019 – New Zealand) The Reserve Bank of New Zealand has justified its plan to increase bank balance sheets by emphasising the social costs of banking crises and arguing New Zealand could not rely on Australian parent companies for a bail-out in severe shock.
The change, announced in December, would force Australia’s major banks to hold NZ$12.5 billion more in capital in their banking operations in New Zealand, saying the “highly profitable” businesses would have to accept lower returns.
The proposal is aimed at making lenders more resilient in a severe banking crisis however it would also hit their profits.
NZ’s biggest banks, which control 88 percent of assets, are owned by ANZ, CBA, NAB and Westpac.
The big four Australian banks made $4.4 billion in cash profits from their New Zealand operations in 2018 representing about 15 per cent of their total combined profit with ANZ tipped to experience the most significant hit.
RBNZ deputy governor Geoff Bascand told the Sydney Morning Herald “each country has to have its own capacity to resolve its own banking crisis,” and New Zealand could not rely on the Australian parent companies for a bail-out.
“You could get a banking crisis that Australia and NZ are both hit concurrently with, and we need to make sure our banks stand strong in it,” he said.