CoOperativeNZ welcomes the opportunity to submit on the Reserve Bank’s proposal to reduce bank capital
requirements. As an organisation committed to advancing economic resilience, financial fairness, and cooperative principles in Aotearoa New Zealand, we strongly oppose this proposal. We believe that lowering capital requirements undermines the stability of our financial system, entrenches inequality, and diverts attention away from more direct, effective, and just solutions to household and business indebtedness.
Our Position
We oppose the proposed reduction in bank capital requirements and instead call for direct debt relief measures as the preferred approach to supporting households, small businesses, and communities under financial stress.
Reasons for Opposition
- Systemic Risk and Financial Stability
Bank capital requirements exist to protect the wider economy from excessive leverage and risky lending. Reducing them exposes New Zealanders to the risk of financial crises, where the costs are borne disproportionately by ordinary depositors, workers, and taxpayers. We cannot afford to weaken these safeguards.
- No Guarantee of Benefits to Borrowers
Reducing capital requirements is often promoted as a way to “free up” bank lending. In practice, banks are under no obligation to pass on benefits to households or small businesses. Instead, reduced requirements tend to increase shareholder returns rather than lower interest rates or expand responsible credit.
- A Missed Opportunity for Real Relief
Many New Zealanders are struggling with high levels of debt, particularly in housing, personal finance, and small enterprise sectors. Instead of relying on indirect mechanisms that primarily strengthen bank balance sheets, we should pursue direct debt relief initiatives that:
* Restructure or write down unmanageable household and small business debt.
* Provide targeted relief for mortgage holders at risk of foreclosure.
* Support cooperatives, iwi, and community organisations to acquire distressed assets and keep wealth circulating locally.
- Moral Hazard and Accountability
By lowering capital requirements, we privatise the profits of lending while socialising the risks of failure. This undermines public trust in financial institutions and creates perverse incentives for banks to expand risky credit without bearing the full consequences of their actions.
- Better Alternatives Exist
Rather than diluting safeguards, the Reserve Bank and Government should explore:
* Establishing a public debt relief fund to purchase and restructure unsustainable household and small business debt
* Expanding not-for-profit lending models such as credit unions and cooperative banks
* Strengthening financial literacy and resilience programs to reduce reliance on exploitative forms of credit.
Conclusion
The proposal to reduce bank capital requirements is a backwards step for financial security, community wellbeing, and long-term economic resilience in Aotearoa. We urge the Reserve Bank to reject this approach and instead lead a national conversation on direct debt relief and fair financial alternatives.
For these reasons, CoOperativeNZ opposes the proposed reduction in bank capital requirements.
Yours sincerely
Jane Wilson, CoOperativeNZ 2025
