Safer banks for greater wellbeing
A speech delivered to the Institute for Governance and Policy Studies, Victoria
University in Wellington, New Zealand
On 26 February 2019
By Geoff Bascand, Deputy Governor and General Manager Financial Stability
2 The Terrace, PO Box 2498, Wellington 6140, New Zealand
Telephone 64 4 472 2029 Online at www.rbnz.govt.nz
Good afternoon,
about the Reserve Bank's recent proposals to increase
It is a pleasure to be able to speak
minimum capital requirements for banks to such a diverse audience at Victoria University
that includes academics, students, government officials, bankers, and members of the
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public. While perhaps not obvious on the surface, these proposals, if implemented in
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whole or in part are likely to have impacts on all New Zealanders.
The Reserve Bank of New Zealand has been tasked by Parliament with promoting the
maintenance of a sound and efficient financial system and exercising its powers to avoid
significant damage to the financial system that could result from the failure of a registered
bank. These responsibilities, among others, such as those related to monetary policy, are
set out in the Reserve Bank of New Zealand Act (1989).1 It is therefore our job at the
Reserve Bank to carry out these legislated responsibilities to the best of our abilities each
and every day, for the benefit of improving the wellbeing of all New Zealanders.
Today I'd like to talk about how we
are proposing to improve the lives of all New Zealanders
by making New Zealand's
banking system safer, and how the recent proposals by the
Reserve Bank with respect to minimum capital requirements will do just that.
History of Bank Failures in New Zealand
In order to set the stage on this topic, I would like to start by looking at the history of bank
failures in New Zealand.
As New Zealanders, we are in the fortunate position of having very little experience with
bank failures.
This is undoubtedly a good place to be.
Since the late 19th century, New Zealand has only experienced two banking crises, one in
the late 1880s and early 1890s, which resulted from a credit-fuelled rural land boom in the
1870s, while the other occurred in the late 1980s and resulted in the Bank of New Zealand
having to be recapitalised by the government and its shareholders.2 The first episode in the
late 1800s occurred well before my time, though as a manager in Treasury during the
second episode, I fully remember the stresses of the 1980s/early 1990s, and contributing to
the subsequent fiscal and social policy adjustment.
Perhaps one banking crisis per lifetime is one too many?3
For those of you that remember the events surrounding the Bank of New Zealand in the late
1980s, as challenging as that time was for the country, it would have been much worse had
the bank not received the financial assistance it needed to avoid an outright failure. Had the
failed and gone through New Zealand's liquidation process, it
Bank of New Zealand would
have almost certainly created a massive disruption to its depositors, placed great stress on
New Zealand's banking
system, and (even more severely) damaged confidence in New
Zealand's
economy.
New Zealand's history with bank failures is
While limited, we all know that the past is not
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necessarily a good predictor of the future so we must view bank failures in New Zealand
as a real possibility and ensure that banks in New Zealand are resilient enough to withstand
severe losses.
The Potential Impact
Given our limited first-hand experience with bank failures, allow me to describe what we
under New Zealand's financial system
think some of the impacts of bank failures might be
framework.
As the resolution authority for banks, the Reserve Bank is responsible for providing advice
regarding when and how to resolve a failed bank.4 The Reserve Bank has several options
for resolving a failed bank. Under any of these options, there would likely be at least some
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level of disruption to the banking system as depositors would lose access at least
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temporarily to some or all of their deposits. It is also possible that depositors may never
recover the full value of their original deposits.5
We would expect that the impact of bank failures would be broader and harsher the larger
banks are with New Zealand's
and more intertwined the failed economy. Not only do New
Zealand's large banks employ a significant
number of New Zealanders, but these banks also
provide the vast majority of financing for individuals and businesses in New Zealand. And
and even 'near failures',
because bank failures, usually result in significant credit tightening
(as banks begin to strengthen their balance sheet by restricting credit to only the most
creditworthy borrowers), it could be expected that some New Zealanders and New Zealand
businesses would not have access to the same level of credit as before. This could mean
that it may be more difficult for individuals to borrow to buy a car or home or pursue further
education, and businesses may have trouble borrowing to meet their short-term cash flow
needs. The decrease in available credit could have disastrous impacts on New Zealand's
economy.
While it is likely that the Reserve Bank would intervene to resolve a failing bank before it is in
a negative capital position (i.e., the Reserve Bank would begin the resolution process when
it is difficult to determine exactly how the bank's
the value of assets exceeds liabilities),
remaining value (and losses) would be allocated among creditors (including depositors) and
shareholders. However, what is known with greater certainty is that creditors (including
depositors) will realise more value in the failed bank if the bank has a greater proportion of
shareholder capital.
Social Costs of Bank Failures
International agencies like the World Bank, the World Health Organization, and the United
Nations have investigated the economic and social impacts of financial crises. They report
that banking crises almost always lead to a general downturn in the economy, associated
with rising unemployment and lost output, with consequential societal effects.6 These
impacts go beyond the financial realm as they affect the health and quality of life, often of
people who had little involvement in creating the crisis. The Global Financial Crisis of
2008/2009 was a prime example, as this crisis led to a widespread global downturn and
higher rates of unemployment. While many countries have since fully recovered from this
crisis, or are on the path to recovery, some countries are still trying to find their footing.
Since the 1970s, there have been more than 140 banking crises around the world. And they
have had large costs to affected economies and societies.7 Unemployment rates and GDP
figures are the more easily quantifiable impacts of banking crises. But what can sometimes
get lost in the discussion surrounding bank failures is the deep personal impacts they can
have, not only on those directly impacted, but also on those indirectly impacted. Economic
models and statistics can only go so far in telling this story, which is why I want to spend
some time on the impacts of banking crises on wellbeing.
If you ask someone who's lived through a banking crisis, they'll likely tell you
that the
impacts were not only significant, but lasting. Perhaps the person you talk to may have lost
their job as a result of the crisis, and if not, it might have been their spouse, a friend, or a
neighbour. Maybe you speak to a young couple that had purchased their first home just
prior to the crisis, only to see its value decline by 30% in the months following the crisis,
forever altering their outlook on the economy and their willingness to make another
significant investment. Or maybe you speak to someone who just graduated from university
prior to the crisis, only to enter a depressed labour market, and forced to accept work well
below their educational qualifications and abilities, forever altering their desired career path.
Talk to these people, and I think they will tell you that banking crises have altered their lives
in ways they wished it hadn't. I think they will also tell you that banking crises
should not be
accepted as an unavoidable fact of life.
For those that lived through the recession we experienced here in the early 1990s, you will
recall that some industries were decimated, and a generation of workers lost. Many of these
workers were not able to re-enter the workforce easily and lost valuable skills while trying to
find suitable employment. And while recessions sometimes occur in the absence of a
banking crisis, it is common for banking crises to ultimately result in recessions.
While shocks to the banking system cannot be avoided, particularly those that originate from
outside our borders, we believe that by making some changes to our banking rules, we can
improve the prospects that our banks will survive those shocks and be able to continue
lending.8 And by doing so, we can improve the economic and social wellbeing of all New
Zealanders.
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Bank Capital What it is and isn't
When we talk about 'bank capital', what are we talking about?
I ask this question because bank capital is a complex subject that is widely misunderstood.
When we talk about bank capital, we are talking about where a bank gets its money.
- either from the bank's owners (its
Banks get their money from two sources shareholders)
or by borrowing it, from people like us, often in the form of deposits. The money banks get
from their owners is the bank's capital. The rest is borrowed - it is 'other people's money'.
The average New Zealand bank gets around 92% of its money by borrowing it. Compare
this with the average business in New Zealand, for which this figure is about 55%.9 If you
are surprised by this fact, I encourage you to confirm this for yourself by taking a look at your
own bank's balance sheet
on our Financial Strength Dashboard, which is available via our
website.10
Figure 1: Shareholder equity to asset ratios, New Zealand banks, non-bank
businesses and NZX-listed property trusts
% of assets
Equity (capital) Debt
100 100
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
New Zealand banks non-bank New Zealand NZX-listed property trusts
businesses
Source: Registered banks'
Disclosure Statements, Statistics New Zealand, company reports
Note: NZX-listed property trusts is an aggregate of the balance sheets of Kiwi Property Group, Goodman
Property Trust, Precinct Properties New Zealand Limited, Argosy Property Limited, Property For Industry Limited,
Stride Property Limited, as at the most recently available balance date.
It is not clear to me why this discrepancy between banks and other businesses is so large,
but perhaps at least part of it can be explained by the fact that, historically, governments
have been much more reluctant to allow a bank to fail than other types of businesses, which
may lead banks to operate closer to the edge.
We believe that this balance of funding sources is not in the best interests of New
Zealanders, which is why we are proposing change.
I will explain why.
'Skin in the Game'
As I mentioned, the Reserve Bank has recently proposed an increase to the minimum capital
requirement for banks.
We have proposed this increase for a number of very important reasons, and one of them is
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to require banks to put more of their own chips not yours into the pot.
The Reserve Bank, like other banking regulators around the world, requires bank owners to
put some of their own money into the bank. While bank owners will, on their own, contribute
some of their own money into the bank, banking regulators set minimum requirements in this
This is what I referred to earlier as the bank's
area to ensure that it is enough. capital, which
'skin in the game'.
acts as the bank's
is 'skin in the game' and why is it
What important?
Put simply, skin in the game refers to the concept of having to bear the consequences of
one's own
decision-making.
An example of skin in the game can be found at your local pool. As you are likely aware,
pools are required to frequently test the water in the pool to ensure that it remains safe to
swim in. If the person who tests the pool water also swims in the pool every day, then they
- some 'skin in the game' -
have some extra incentive to ensure that the water remains
safe.
By having minimum 'skin in the game' requirements, banking regulators ensure that the
owners of a bank have something at stake, something to lose. I would like to note that
banks themselves lend on these very same 'skin in the game'
principles, for example, by
requiring mortgage borrowers to provide a deposit.
At one time, the owners of a bank had plenty more 'skin in the game' than they do today.11
However, over the last century, banks have started to use less of their own money and more
other
of people's.
While we are not attempting to turn back the clock a hundred years, we want to swing the
pendulum back in the other direction a little bit.
We believe that more 'skin in the game' for banks will result in:

Banks being better able to absorb large, unexpected losses. Losses reduce the
value of a bank's assets, but have no effect on the value of the bank's debts.
If
the assets fall in value so far as to be insufficient to cover what the bank owes,
the bank is insolvent.

Society being less at risk from banking crises. Because more capital means
banks are more likely to survive large unexpected shocks, society is also less at
risk from the economic and social fallout that usually accompany bank failures.

Reduced fiscal risk. When the probability of a banking crises is reduced, so is
fiscal risk. As the Global Financial Crisis illustrated, when banks fail there can be
a severe domino effect that puts pressure on governments to step in with
financial support. The provision of a government guarantee on deposits during
our own finance company crisis a decade ago is an example.

Bank shareholders and management being less inclined to take excessive risks.
Owners Lose First
Bank capital serves several purposes, but its primary job is to absorb losses. When a bank
it is the owner's money that is lost first, as it should
loses money, be.
if the bank's
Borrowing a poker analogy12, skill and luck runs sour, it is the owners' chips that
In a bank's case, the borrowed chips are
are lost first, not the chips they borrowed. the
deposits and other money it has borrowed.
Why, then, do banks operate with so few of their own chips at the table? While I will let
I will only say that an individual bank's
banks answer that question for themselves, own
wider
goals and objectives do not necessarily line up with society's.
In any event, we have proposed that banks come to the table with more of their own chips,
other
and less of people's, which will reduce the risk of them folding and reduce the risk of
the New Zealand taxpayer ever having to step in to save them.
The Capital Review
The economic and social cost dimensions of bank failures are readily understood. The links
to bank capital and the Reserve Bank's regulatory requirements are perhaps
less familiar.
The Reserve Bank of New Zealand has been undertaking a review of its capital framework
for New Zealand banks since March 2017. The purpose of the review is to identify the most
appropriate capital framework for New Zealand banks in order to best enhance the long-term
welfare of New Zealanders.
Prior to undertaking this review, we set out these following six key principles for the review:
1. Capital must readily absorb bank losses ahead of creditors and depositors.
2. Capital requirements should be set in relation to the risk of bank exposures.
3. Where there are multiple methods for determining capital requirements, outcomes
should not vary substantially between methods.
4. Reflecting the risks inherent in New Zealand financial system and the Reserve
Bank's regulatory approach, New Zealand bank capital requirements should be
conservative relative to international peers.
5. The capital framework should be practical to administer, minimise unnecessary
complexity and compliance costs, and take into consideration relationships with
home-country regulators.
6. The capital framework should be transparent to enable effective market discipline.
The magnitude of this review led us to separate it into different phases. The first phase of
the review determined the scope of the main issues that would be considered as part of the
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review. The second phase of the review looked at the numerator the nature and quality of
bank's capital. The third phase - the bank's assets
looked at the denominator and their
measurement or weighting. We are now in the midst of the fourth and final phase of the
review, which focuses on the capital ratio (the ratio of the bank's capital to its assets), and
what the minimum level of this ratio should be.
As a matter of practice, before we change the rules for banks in New Zealand, we ask them
and the wider public what they think. And we did just that when we released our fourth
consultation paper on 14 December 2018. In that consultation paper, we proposed that New
Zealand's banks bear a greater share of the financial system's risks by increasing their
minimum capital requirements. We will be accepting comments on these proposals until
can be found on the Reserve Bank's website; I
3 May 2019. The consultation document
would encourage all of you to take a look at it.13 And for those of you that find even the
thought of wading through a long and technical paper on bank capital entirely unappealing,
we have included a shorter, non-technical summary that captures the main concepts of our
proposals and can be read in only a few minutes.
While I do not wish to pre-judge the input we will receive from this consultation, I do not
believe I am making too bold a prediction in saying that we expect to hear strong opposition
to these proposals from some banks. While we expect to receive formal submissions from
the banks and the banking industry closer to the 3 May comment deadline, we have already
heard quite a bit from various market commenters, both within and outside New Zealand. I
think it's fair to say that the reaction from these -
commentators has been mixed some
commentators believe our proposals are entirely reasonable and justified, while others
believe that our proposals are too extreme. Let me once again say that all feedback on our
proposals, whether short or long, supporting or dissenting, from whatever level of financial
sophistication, is welcome. We will review all of it carefully.
While we recognise that these proposals may not align with the interests of banks'
shareholders, the key question is whether they are aligned with the best interests and
wellbeing of New Zealanders.
Our Proposals
It is now time to dig into the weeds a little.
What exactly have we proposed?
As I stated earlier, banks in New Zealand, like banks around the world, are required to have
This means that a minimum percentage of all a bank's money
minimum levels of capital.
must come from its owners.
In New Zealand, at the moment, the Reserve Bank has set this minimum amount at 10.5%
for total capital, which is consistent with total minimum capital requirements set by the Basel
Committee on Banking Supervision (BCBS), a group of international banking regulators and
central banks.14 We are proposing to increase this total minimum capital requirement from
as 'systemically important' and 17%
the current 10.5% to 18% for banks that are identified
for all other banks.15
Within this proposed increase from 10.5% to 18%, we are proposing to increase the
minimum capital requirement for 'Tier 1' capital -
a form of higher quality capital that can
bank's losses -
better absorb a from 8.5% to 16% for banks that are identified as
'systemically important' and 15% for all other
banks. Tier 1 capital is what we regulators
refer to as capital, meaning that it helps absorb a bank's losses while the
'going-concern'
a - in layman's terms, while the bank is 'still alive'.
bank is 'going-concern' It is this high
quality capital in particular that would achieve our objective of making New Zealand's banks
more resilient to severe shocks.
requirement of 2% for 'Tier 2' capital, which
The Reserve Bank also has a minimum capital
we regulators refer to as capital, as it is only effective in absorbing a bank's
'gone-concern'
losses after a bank is 'gone' (after the bank has failed). Given that we are proposing to
increase minimum requirements for the highest quality Tier 1 capital from 8.5% to 16% or
15%, our most recent consultation paper asks the question of whether this lower quality Tier
2 capital is needed as part of the capital framework at all.
And to dig even further into the weeds, of the proposed minimum Tier 1 capital requirement
of 16%, the first 6% will consist of a regulatory minimum that banks are not to breach (to do
so would trigger resolution or failure options), with the 10% that sits above that being what
we call a capital buffer. We are proposing that the top 1.5% of this 10% capital buffer
capital buffer', which would be removed in the event of a large
consist of a 'counter-cyclical
economic stress so that banks could continue to lend to support the economy during this
stress period (provided of course that the bank was fundamentally healthy).
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While on the surface the proposed increase may look dramatic indeed, it has been
as "radical" -
described by some the actual increase for banks would not be quite as high.
The reason for this is that banks, for the most part, are currently operating well above the
existing 8.5% minimum requirement for high quality capital. On average, banks in New
Zealand are operating with approximately 12% of such capital16. As such, our proposed
increase to minimum requirements may not be as large as it appears on the surface.
Figure 2: Tier 1 capital, four largest locally incorporated banks, aggregate of other
locally incorporated banks
Large banks
Other banks
18 18
$12.5b
16 16
$0.4b
14.1%
14 14
15%
11.8%
12 12
16%
10 10
8 8
6 6
4 4
2 2
0 0
Current Net Tier 1 Proposed Current Net Tier 1 Proposed
outcome capital needed ^ minimum outcome capital needed minimum
(comparable
basis)
Source: RBNZ Balance Sheet Survey, RBNZ estimates
^: Tier 1 capital needed to meet the proposed minimum capital levels, not including the replacement of
outstanding Tier 1 capital that would no longer qualify under the proposed changes to the capital framework
(approximately $6bn for large banks, $150m for other banks). Does not include any voluntary capital surplus
banks may choose to operate with, above the proposed minimum.
Note: Data as at November 2018. Current outcome (comparable basis) incorporates proposed changes to the
calibration of the internal ratings based approach to credit risk used by the four largest banks.
Banks have several options for meeting the new requirements, which include retaining a
greater proportion of their earnings rather than paying them out as dividends, issuing shares
or other eligible instruments that would qualify as capital, or possibly reducing lending in
certain markets.
While it would be up to individual banks to decide how to meet any increased minimum
requirement, we believe these are all viable options. For example, we estimate that the
large four banks could meet these new requirements by retaining about 70% of their
expected profits over the proposed five-year transition period, with no need to slow down the
rate at which they have grown their lending in recent years.
How We Got Here
It is reasonable for the banking industry, and others, to ask why we have specifically
(or 17% for
proposed a minimum total capital requirement of 18% 'non-systemically
important'
banks).
Allow me to elaborate on how we arrived at this number. First, we began with the
international standards set by the Basel Committee. These set the minimum total capital
ratio requirements at 10.5%, which is the level of New Zealand's current
minimum total
capital requirements. However, it is common to see other jurisdictions go above and beyond
these standards to suit their particular circumstances. This is where our journey really
begins, and it starts with the question:
What are the correct capital requirements for New Zealand?
We started with our legislative mandate of 'promoting the maintenance of a sound and
efficient financial system' to guide our approach to answering this question.
what we call a 'risk appetite framework'.
Our overall approach was to use The framework
combines ideas about the impact of capital on the likelihood of a banking crisis, the impact of
capital on output, and society's tolerance for banking crises. We applied a risk-tolerance
"How can
concept to the policy problem, we deliver a sound financial system for all
stakeholders, not just the banks?" We then considered whether any extra gains could be
made in the long-term by increasing capital (by reducing the likelihood or impact of bank
failure on GDP). This reflected the efficiency limb of our 'soundness and efficiency'
objective. This meant that, where there was an opportunity to improve the stability of the
financial system (and thus mitigate societal costs of crises) without economic costs, we
would take it.
Several lines of analysis underpinned this policy approach. One of them was quantitative
adopt a specific representation of society's risk appetite.
modelling. This required us to We
could have carried this out in a complex way, however, this would have only given an illusion
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of certainty. Instead, we opted to adopt a simple decision rule set capital to cap the
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probability of a systemic crisis at a low level once in every two hundred years.17 By setting
a one in two hundred year risk appetite, we aimed to reflect the significant uncertainty
involved in estimating capital requirements as well as achieve our aim of a sound financial
system.
Allow me to put this one in two hundred year assumption into better context for New
Zealanders by relating it to the all too frequent earthquakes we experience right here at
home. As we all know, we experience small earthquakes quite frequently, most of which are
However, what everyone worries about is the 'big one' (i.e., the one in
not felt by most of us.
year earthquake). We don't know when the 'one in five hundred' will happen,
five hundred
it will be big. That's the basic concept behind the
but we know that when it does happen,
one in two hundred concept we're talking about in this current
capital consultation.
to set, but it's important to remember just how damaging
This may sound like a high-bar
bank failures can be, not just in economic terms, but more broadly in terms of mental and
It's also important to remember that the
physical health, and general societal wellbeing.
societal impacts tend to go well beyond the initial year of a banking crisis.
Such an approach is also common in international standards. Once every two hundred
years is the risk tolerance adopted in Europe by regulators of insurers. The Basel
international standards, and current New Zealand framework for that matter, use a once in a
thousand year basis for determining the relative riskiness of different types of lending.
As part of our risk appetite framework, the relationship between capital and output was also
considered. It is generally accepted that there will be some impact on interest rates and,
ultimately, output. The relationship between capital, output, and wellbeing is more dynamic
than it may seem at first, as I will allude to shortly. For now though, I will say that we believe
that there are few efficiency gains to be made by going beyond the current proposal of 18%
(or 17%). The level of capital we think is needed to meet our soundness objective has also
addressed the potential to increase stability without adversely impacting on long-term output.
There were other threads of analysis that supported our proposals. A comprehensive review
of the international literature told us that we were within the range of capital ratios that were
appropriate. Furthermore, building on analysis that began in 2012, we looked at the
implications of representing society's risk appetite differently.
This analysis took into account
New Zealand specific factors and captured household risk-aversion.18 As with findings from
similar types of analysis in the international literature, there is a wide range of plausible
calibrations. However, this analysis ultimately showed that a capital ratio of 18% (or 17%) is
for the 'optimal capital ratio' for New Zealand.
in the mid-point of our range of estimates
We were therefore comfortable that most, if not all, of the gains were being reaped for the
economy at the 18% (or 17%) minimum capital requirement proposed from our risk-appetite
framework. Going far beyond this point could not guarantee additional benefits for the
economy, and similarly going far below left much to be desired in terms of potential
efficiency (expected output) and financial stability gains.
We are consulting on proposals that we think we have about right. The soundness lens we
use to think about capital considers the impact of capital on the likelihood of a crisis and the
consequent fallout. The efficiency lens tells us that there are few, if any, output gains to be
made from varying the level of capital from what is justified on soundness grounds.
I would like to reiterate that we are currently consulting on our proposed minimum capital
requirements, including the risk appetite setting that we have chosen. As I have previously
stated, it is ultimately society that will bear the wider costs of a financial crisis. As such, we
would like to hear New Zealanders'
views on whether the one in two hundred year risk
appetite setting is appropriate for New Zealand.
The Costs
We propose increasing capital in the banking system to make the system safer because we
believe the economic and social benefits outweigh the costs.
I have already described some of the many benefits that would be derived from increasing
capital in the banking system, so in fairness, I must now address the costs.
banks'
Increasing capital requirements is expected to result in an increase in average
funding costs. This is because shareholders generally require a higher rate of return from
we're
their investment than depositors and other creditors. Since proposing that banks rely
banks'
more on this more expensive form of funding, total funding costs could be expected
to increase somewhat. Of course, since the banks would also be safer (have less risk),
shareholders, depositors, and other creditors, could be expected to lower their expected
returns (relative to what they expect today), which would moderate the impact of the
increase in capital on average funding costs.
When banks face an increase in costs, they can be expected to try to pass these costs on
through various means, including to their borrowers through higher lending rates and to
depositors and other creditors through lower deposit rates. However, we expect that
banks'
competitive pressures may limit ability to fully pass these costs on to others.
Taking into account the safer investment in banks for shareholders, and competitive
pressures in the market, we think the increase in lending margins (the difference between
bank lending and borrowing rates) due to our proposals will be in the vicinity of 20 to 40
basis points (less than half of one percent), which assumes that bank shareholders demand
bank's lower
a lower return on equity on account of their risk. This 20 to 40 basis points
change represents a combination of deposit (and other creditor) rates falling and lending
rates increasing. That is, interest rates on deposits and other bank liabilities could fall to
make up some of this margin, with lending rates for borrowers rising to make up the
remainder.
Higher lending rates can dampen investment and lead to lower potential output. However, in
the short-term our own models suggest that the impact on lending rates will be little more
than 'noise', something that will likely be drowned out by wider economic
factors. Looking at
this from a longer horizon, the international literature implies that the cumulative (and
present value) impact of an increase in lending rates of less than half of one percent could
be equivalent to a one-off reduction in the long-run level of output of around the same
amount (i.e., equivalent to a one-off impact on output of less than half a percent). The
expansion in lending rates that we expect, of course, is less than this due to the potential for
lower deposit rates to contribute to the margin expansion. The very