RBNZ takes position on bank capital

Orr’s monologue on bank capital at the Financial Stability Review presentation this week was a freshening surprise. No longer the wallflower of kiwi prudential supervision, Orr elevated bank capital to the top spot of priorities.

Reinforcing Orr’s FSR rant monologue, the reserve bank published a short and clear speech, announcing its position on bank capital: “… New Zealand is not prepared to tolerate a system-wide banking crisis more than once every 200 years.” 

Higher bank capital fosters social cohesion. Orr’s latest speech puts our  interests at the centre because the wider public loses a lot more than the banks do in a crisis. And rightly so: studies have shown that bank crises have invariantly led to an increase in populism. Orr acknowledges this, showing he is a competent regulator who translates his observations into relevant policies.

Orr’s three-pager is refreshing. It is short, clear, and littered with pictures (see below). Clearly different from a speech that prompted me to write a previous post