Sir Ralph Norris: Reserve Bank has 'gone a step too far'

Sir Ralph Norris has been critical of the Reserve Bank's capital proposals. Photo/Greg Bowker.

Former banker Sir Ralph Norris has weighed into the debate over the Reserve Bank's proposals to boost bank capital.

Norris, a Kiwi who headed up ASB bank for 10 years until 2001 and later went on to become chief executive of ASB parent Commonwealth Bank of Australia, told The Australian that introducing the proposals alongside a deposit guarantee scheme was a step too far.

"They [the Reserve Bank of New Zealand] have probably gone a step too far … with the deposit guarantee it is almost a doubling up."

The RBNZ's proposals which include a near doubling of the minimum common equity banks should hold from 8.5 per cent currently to 16 per cent, have met with strong resistance from the Australian-owned banks.

The proposed increase is designed to make banks safer and better designed to handle periods of financial stress by holding enough capital to reduce the probability of a financial crisis in New Zealand to a one in 200-year event.

The banks have warned it will push up mortgage rates and last month ANZ said in its submission to the proposals that it would review the "size, nature and operations" of the New Zealand business if the Reserve Bank implemented its proposed changes.

On top of the capital proposals, the Government also announced plans for a deposit guarantee scheme last month which would cover almost all Kiwis up to $50,000 in the event of a bank collapse.

The legislation for the scheme is expected to be drafted in the first half of next year – it is not yet known when it would go before the House as a bill.

A final decision on the capital proposals will be made by the Reserve Bank in November and is expected to be phased in over five years.

Norris also told The Australian that if the Australian banks chose to exit the New Zealand market other global players would step in, particularly out of Asia.