Capital Instruments for Mutual Banks being considered

The Reserve Bank of New Zealand – Te Pūtea Matua is seeking feedback on policy options for mutual banks to issue capital instruments.

In December 2019 we published the final decisions from the Capital Review which focused on improving the quality and quantity of capital banks are required to hold. One unresolved issue from the review was to consider developing a bespoke capital instrument for mutual banks which could qualify as Common Equity Tier 1 (CET1) capital.

Currently, mutual banks in New Zealand are not able to issue such instruments without compromising their mutual status, Deputy Governor and General Manager of Financial Stability Christian Hawkesby says.

“Stakeholders have told us that the inability of mutual banks to issue CET1 capital instruments makes it difficult for those banks to raise high-quality, loss-absorbing capital efficiently. They’ve told us that this restricts mutual banks’ lending growth as it adversely impacts their ability to compete on a level playing field,” Mr Hawkesby says.

The consultation paper seeks stakeholder’s views on two policy options to provide mutual banks with an instrument which could qualify as CET1 capital. The proposals are based on comparable international approaches.

We are inviting submissions on this consultation from all interested parties until 10 June 2022.

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