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New Zealand Banks’ Vulnerabilities and Capital Adequacy

Author

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  • Mr. B. Jang
  • Mr. Masahiko Kataoka

Abstract

The paper finds that, 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 in the paper 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. However, combined shocks to both residential mortgages and corporate lending would put more pressure on the banks’ capital. Given high bank concentration and large offshore wholesale funding needs, the merits of higher minimum capital requirements for systemically important domestic banks could be considered, together with other measures to be implemented.

Suggested Citation

  • Mr. B. Jang & Mr. Masahiko Kataoka, 2013. "New Zealand Banks’ Vulnerabilities and Capital Adequacy," IMF Working Papers 2013/007, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2013/007
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    References listed on IDEAS

    as
    1. International Monetary Fund, 2012. "Australia: Financial System Stability Assessment," IMF Staff Country Reports 2012/308, International Monetary Fund.
    2. Rodrigo Cubero & Mr. R. Brooks, 2009. "New Zealand Bank Vulnerabilities in International Perspective," IMF Working Papers 2009/224, International Monetary Fund.
    3. Kevin Hoskin & Stuart Irvine, 2009. "Quality of bank capital in New Zealand," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 5-16, September.
    4. International Monetary Fund, 2010. "Canada: Selected Issues Paper," IMF Staff Country Reports 2010/378, International Monetary Fund.
    5. Niamh Sheridan & Mr. B. Jang, 2012. "Bank Capital Adequacy in Australia," IMF Working Papers 2012/025, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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