Michael Reddell’s blog post of today reminded me that RBNZ governor Adrian Orr is scheduled to appear before the Parliament’s Epidemic Response Committee (PERC) tomorrow. The appearance will be an interesting event for sure, because it is difficult to challenge the Governor, ask him important or prickly questions in the flesh. In testing times like… Read More More questions for the RBNZ
Yesterday’s interest.co.nz featured an article summarising the work the RBNZ has done to support our economy. The article shows a long list of actions taken by the Reserve Bank, and yes, it looks impressive. On the other hand, the text appears to serve as a mouthpiece for Assistant Reserve Bank Governor Christian Hawkesby, offers little… Read More On bank capital, what should the RBNZ do now?
I just read Gareth Vaughan’s opinion in today’s interest.co.nz. Though most of his contributions are spot on and relevant, on the topic of bank capital I have seen Gareth once in a while making things up as he writes. For example, his idea that the Standardised Approach (SA) for risk weight calculations, as opposed to… Read More A resilient banking system
Fragile by design Banks are fragile by design*. They have lots of debt, equity is only a fraction of total assets, depositors can withdraw their money on the drop of a hat. If depositors want their money back then there is a first-come-first-served rule, which differs from non-bank, corporate (orderly) bankruptcy, where creditors know their… Read More Max Headroom
A lesson that I learned from the Global Financial Crisis is that the “one in the many years” events materialise much quicker than expected. The thing is, these models never rule out that the event will happen tomorrow. The RBNZ predicated its recent capital plans on a 1-in-200 year chance of a financial crisis. The… Read More A one-in-200 year event
An evaluation of RBNZ’s hybrid capital securities Will the RBNZ’s latest innovation on bank capital, the Redeemable Perpetual Preference Shares, contribute to more and better bank capital? The analysis below casts doubt on the success of RBNZ’s attempt to help New Zealand banks to issue capital at a low cost. A victim of its own… Read More Political Tier 1 Capital: PT1
On 5 December 2019 at 12:01 pm, I received an email from the Reserve Bank of New Zealand. The email announced some important decisions about the Bank’s capital review. As the email contained summary information only, I went to the RBNZ website to get the documents explaining the capital review decisions. Unfortunately, it was impossible… Read More The curious share price movements of four big Oz banks on 5 December 2019
A short note on the outcome of the RBNZ capital plans Today, the RBNZ posted its final capital plans – well, they still need to be finalised, but for the Christmas holidays this will do. In fairness, I see no reason not to commend the RBNZ for their decisions on capital. See the summary cheat… Read More On olive branches and olive trees
Tomorrow at noon, the RBNZ will reveal its bank capital plans. After many years, the RBNZ will likely decide to increase capital requirements to 17 percent for all banks, with a 1 percent add-on for systemically important banks. Having contributed to capital rules for the Basel Committee and the European Union, for me, most of… Read More RBNZ's capital proposal, the grand finale …
Last week, the RBNZ released the three independent international experts’ assessments of the New Zealand Capital Review. The RBNZ commissioned three international experts in May as part of the bank capital review. The reports by Cummings, Miles and Levine offer interesting views on bank capital. The reports are different in substance and style. However, they… Read More My two cents on Ross Levine’s expert report: deep thinking on incentives, dynamics, and moral hazard.