With the banking sector pushing back hard against the Reserve Bank's proposed capital ratio changes you could be forgiven for thinking we were headed for some sort of self induced credit crisis.
The Reserve Bank is proposing a lift in the amount of risk weighted capital retail banks hold, from 8.5 per cent to 16 per cent.
The banks aren't happy, calling it overly conservative and warning it could limit the availability of credit in some sectors of the economy.
But the Reserve Bank seems committed to shoring up the banks against the risks of a major crisis any more than once in 200 years.
The submissions are in and the RBNZ is now considering its response.
Are we are headed for a showdown?
Melbourne based banking analyst Sharad Jain, a director with S&P Global Ratings, said it was true that the Reserve Bank's proposal was stronger than the current proposal for Australian banks.
But he remained confident the New Zealand system would provide an orderly resolution to the proposed change.
"There is inherent conflict from the point of view of the shareholders," he told the Economy Hub. "Because the more of the capital you pump in the less return for the shareholders."
It was naturally provoking some push back from the industry.
New Zealand and Australian banks were amongst the most profitable in the world, he said.
"That's, in our view, the result of good economies, good financial management and prudent risk taking, prudent regulation," he said.
But the trend, as with elsewhere in the world, was for profits coming down.
That was due to increasing competition, increasing use of technology in banking, he said.
Overall risk in the New Zealand and Australian banking sector was currently elevated relative to historic levels, Jain said,
That was due to several years of several years of rising house prices and elevated levels of private sector debt.
But that was starting to ease as the markets cooled both here and in Australia.
"New Zealand is perhaps slightly ahead of Australia in that cycle in our view, in that house prices have already stabilised and starting to improve. Where as in Australia we are still seeing a downturn in house prices, particularly in Melbourne and Sydney."
On top of that the big four banks (NAB, CBA, ANZ and Westpac) have just been through a period of heightened public and media scrutiny with a Royal Commission in Australia.
"One of the important things that came out of the Royal Commission was an adherence to responsible lending standards," Jain said.
That already had the major banks looking very closely at their lending.
There was a risk of higher capital levels would further tighten credit in some areas, he said.
"I think the capital levels do, and could, have broader social and economic ramifications." Jain said.
But it was also the job of the prudential regulator to manage the banking risk, he said.
"Any substantial failure or crisis in the financial system also has social implications, so its a balancing game."