The RBNZ recently finalised its capital review in an effort to safeguard banks against economic shocks. Retail banks will be expected to hold $20 billion in capital at all times, which will have implications for small and big banks alike. While this move is a great insurance policy designed to reduce the potential of a public bailout, it could also lead to more expensive mortgages, lower deposit rates, and more stringent lending criteria.

The big four Australian-owned banks - ANZ, ASB, BNZ, and Westpac - will have to raise their held capital from 10.5% to 18%. The smaller banks, including Kiwibank, SBS, TSB, and the Co-op Bank, will have to hold a minimum of 16% of their capital. The current average capital minimum for the banking sector is about 14%, with the new rules forcing the sector to raise as much as $20 billion to meet the new minimum requirements.

According to RBNZ Governor Adrian Orr, "More capital also reduces the likelihood of a bank failure... Our decisions are not just about dollars and cents. More capital in the banking system better enables banks to weather economic volatility and maintain good, long-term, customer outcomes." The new capital limits are largely in line with the RBNZ's original proposals, which were designed to withstand a one-in-200 year financial crisis.

While the intentions behind the move have largely been heralded, it's still unclear who will end up paying for this additional financial security. According to the RBNZ themselves, additional capital could be raised by the banks selling shares, getting additional money from parent institutions, holding onto profits and paying lower dividends, or through a mix of other financial instruments. According to the banks and some commentators, however, borrowers could end up footing most of the bill.

Even the RBNZ think mortgage costs will rise by around 0.2 percentage points, which is $29 more per fortnight or $765 more per year for the average New Zealand mortgage holder. In reality, however, this increase could be much more, with lower deposit rates and credit rationing also highly likely. Overall, the New Zealand Bankers' Association has welcomed the conclusion of the review, saying "Today's announcement provides our banks with certainty on the amount and type of capital they will need to hold in future... In particular we acknowledge the longer implementation timeframe of seven years instead of five, which commences in July 2020."

According to Finance Minister Grant Robertson, the new capital requirements are necessary and the original proposal has been modified to lessen the burden on borrowers: "What I think's really important now is that both the trading banks and the Reserve Bank work together to get back to what this is really about, which is the safety of New Zealanders' money in the bank... New Zealand's banks, particularly the four Australian-owned ones do very well here, they're very profitable here, there is no need for a particular sector to bear the brunt of this."