Regulatory Alerts2022-05-17
Capital Review - The Risk Appetite Framework
The Reserve Bank of New Zealand issued this presentation to outline its proposed Risk Appetite Framework for setting banking capital requirements. The framework establishes a two-part policy goal of ensuring banking system soundness and economic efficiency, targeting a 0.5% to 1% annual probability of insolvency. It details a two-step decision-making process that first determines the capital needed for solvency and creditor confidence, then evaluates whether higher capital levels would increase the net present value of future output.
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