Sounds like the Massey University panel on banking regulation was good times – with Don Brash, David Tripe, and Bevan Graham all largely in agreement.
For what it matters I also agree with a lot of what they said 😛
On a side note Brennan McDonald linked to a Radio NZ piece on LVR restrictions which he recommends. I haven’t heard it – but I wouldn’t be suprised if it goes down the same road as the panel.
So what seem to be the main points from the panel (from the article – I was not at the panel presentation):
- LVR restrictions are not “best policy” they are just what is readily available and understood now – in a similar situation in the future the RBNZ may do things differently, as they will have the systems and communication in place!
- Counter-cyclical capital buffers have a place here.
- Ensuring banks have sufficient capital is the key issue here – are capital requirements at the right level?
Now the RBNZ has said plenty of similar things themselves – their background paper lays this all out very neatly for everyone.
One thing I do have to correct from the stuff article though, the title “Banks need more cash – Brash” isn’t quite correct.
From the quotes he is saying the banks need more capital relative to risk weighted assets. Banks could do this by holding retained earnings sure – but they could also get equity financing, or reduce their risk-weighted assets (reduce lending, which is an asset to banks). This is a bit different to just holding cash reserves!
The question is, does the implied regulatory minimum for capital requirements (or the changes to counter-cyclical requirements) account for two things:
- A systemic externality on other firms in the banking system
- The implicit subsidy banks are getting with regards to the existence of bailouts and a lender of last resort
To anyone who has read “The Banker’s New Clothes” this must sound quite familiar. This is true! We are lucky to be in a country where the central bank is already on top of, and relatively clear about, these issue – party times.