By Gareth Vaughan
The country's banks as a group remain comfortably on top of their requirements under the Reserve Bank's core funding ratio (CFR).
The latest Reserve Bank data shows locally incorporated registered banks with a combined CFR of 85.7% at the end of April.
That's up from 84.8% a month earlier, and is based on core bank funding of $250.058 billion and total lending of $291.946 billion.
Introduced in April 2010 as a move designed to reduce New Zealand banks' reliance on short-term overseas borrowing, the CFR currently sets out that banks must secure funding for at least 75% of their lending from equity, retail deposits, and wholesale sources such as bonds with durations of at least a year.
The Reserve Bank lifted the CFR to 70% from 65% on July 1, 2011, and to 75%, from January 1, this year.
The CFR is one of four macro-prudential tools included in a memorandum of understanding signed between Reserve Bank Governor Graeme Wheeler and Finance Minister Bill English last month.
The tools are there for the Reserve Bank to use if it chooses to, on a temporary basis, to try and dampen excessive growth in credit and asset prices and strengthen the financial system.
Under the macro-prudential tool agreement, the Reserve Bank is able to adjust the CFR to alter the amount of equity, retail funds and longer-term wholesale funding banks have to hold.
Since the April 2010 introduction the highest the combined CFR for locally incorporated banks has been was 86% in October last year, and lowest was 77.8% in July 2010.
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8 Comments
Gareth, is there a readily available explanation for what constitutes core funding for CFR calculation puposes and how and what does it exclude from that detailed here and here ?
Stephen, it's not quite that simple. From what I can make out it's a complicated set of rules that vary depending on the type of customer, size of the customer, type of deposit and tenor. Try this link for the detail: http://www.rbnz.govt.nz/regulation_and_supervision/banks/banking_supervision_handbook/3675928.pdf
If all the banks are comfortably above the 75% minimum and the deposit market is out-growing the lending market, then this suggests deposits rates might continue to fall.
I was thinking of an explanation that my Mother might understand when she has to make that due diligence decision to retain or withdraw deposit money in favour of one NZ banking institution over another as Mr Woolford so glibly suggests she should. Read more
Unsecured creditors include a wide range of individuals
and entities. At one end of the spectrum, there are large
international financial institutions that invest in debt issued
by the bank (commonly referred to as wholesale funding).
At the other end of the spectrum, are customers with
cheque and savings accounts, and term deposits.
Whilst there are differences between different classes of
unsecured creditors, they all have the same legal claim on
the bank. Each has freely invested in a private institution and
has enjoyed a return on that investment whilst accepting
the risks associated with the investment. Under the OBR,
it is expected that all unsecured creditors would be treated
equally with the same proportion of claims remaining frozen
for all depositors and creditors.
Are the currency swapped foreign bond proceeds (unsecured wholesale funding) of European debt issued by our local banks subject to the imposition of OBR as much as Mr Woolford tells us?
If all the banks are comfortably above the 75% minimum and the deposit market is out-growing the lending market, then this suggests deposits rates might continue to fall.
Just out of interest, from whom did you get this belief ?
Read more to see mine and others views on the matter - take note of the credit rating agency claims which deny your view of reality.
A rough guide can be surveyed here: bank claims, bank funding
But as you will also note the so called sticky retail/household deposits, that apparently are the main component that confers bank funding continuity are a mile away in magnitude from the lending side and could certainly benefit from a little encouragement in the form of a higher interest rate to reduce the nation's dependence on fickle, cheap foreign wholesale funding.
Oops...the goalposts are moving fast:
"For Australia, the worst is yet to come. Australia escaped a big economic bust in 2008 because of high demand for housing and commodity demand from China, but both sectors are in the tank now, and will stay there.
China is slowing and will continue to slow, Australia labor costs are ridiculous, the Australian housing bubble has burst, and commercial real estate has only one way to go: down"
http://globaleconomicanalysis.blogspot.com/2013/06/australian-dollar-plunges-as-home-loans.html#qPKDKgBBltJHdXbC.99
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