Reserve Bank announces review of bank capital requirements

The Reserve Bank is reassessing how much capital banks need to hold in reserve amid criticism its policy is too tough and costly.

Board chair Neil Quigley told the Finance and Expenditure Committee inquiry into banking that an evidence-based review of capital requirements will be undertaken by international experts with a report expected by the end of this year.

He said the review will take time, and cannot be rushed.

"We cannot just decide next week we're going to do something different," he said, adding the current requirements took two years to set.

Finance Minister Nicola Willis said higher capital requirements increased the cost of borrowing.

"It's important that the Reserve Bank's prudential regime preserves the stability of our financial system, while taking care not to not impose excessive costs in the process," she said.

"I want to see settings that preserve financial stability while encouraging investment, job creation and income growth."

Quigley said the review will clear-up any perceptions about the relative toughness of the capital regime compared with Australia and other countries.

It will also address concerns raised by a recent Commerce Commission review into banking competition.

In addition Quigley said there were a number of other matters before the Reserve Bank, including the appointment of the next Reserve Bank governor, following the resignation of Adrian Orr.

The review also coincided with other Reserve Bank reviews, such as deposit-taking standards.

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