) has its limitations and needs to be partnered with broader fiscal and structural economic policy ( the domain of the government of the day ). likewise, business people need to consider a much longer - term horizon when investing, looking through the omnipresent political uncertainties de jour. we are not alone in the aotearoa waka. other economic levers need to be utilised effectively to enhance social cohesion and wellbeing. the bank ’ s regulatory activity includes promoting financial stability. we have our prudential tools set to ensure our financial institutions are robust financially and culturally. this is our best lever into financial soundness and inclusion. providing certainty in uncertain times is a great skill to have, and central bankers world - wide are working hard to do just that. they are being challenged on communication – what they can and can ’ t influence and how they are doing this. we understand that lower interest rates do not remove the global political uncertainty. but they do offer greater certainty on the financial and investment front. businesses and governments should be re - assessing their hurdle rates on their investment projects. low and stable global interest rates mean that what was once costly may now be a sound investment for the future. the reserve bank is among the global central banking crowd – we are not alone. but we need other actors to assist and understand. kia kaha. 2 / 2 bis central bankers'speeches

% 7. 00 % 20 % 6. 00 % 5. 00 % 15 % 4. 00 % 10 % 3. 00 % 2. 00 % 5 % 1. 00 % 0 % 0. 00 % return on tier 1 capital 12 month average tier 1 capital to tangible assets ( rhs ) 12 month average source : rbnz gds survey data, rbnz calculations. determining appropriate capital requirements is, of course, more than just counting the benefits. the upsides must be balanced against the downside of higher interest rates. we ’ ve anticipated that there will be a 20 to 40 basis point increase in bank margins in the long term as a result of these proposals. 6 while these are relatively small numbers, they will ultimately have an impact on investment and spending in the new zealand economy. our approach from the outset has been to set capital requirements at a level where we can be confident that these costs are outweighed by the benefits of a safer financial system. to calibrate our proposals for new zealand, we drew on many pieces of analysis. these included international literature, stress test results and historical new zealand data on bank losses and loan performance. currently we are reviewing all inputs and modelling assumptions, and carefully assessing submissions, before finalising the plans that will be announced in december. as well as the 6 two of the external experts, dr james cummings and professor david miles, suggest that these estimates may be on the higher side of what is plausible due to the cost of equity being overstated. the summary, as well as their reports, are available on the capital review page on the reserve bank ’ s website. overall level of capital, we are also re - examining all other aspects of the review, such as the quality of capital ( capital instruments ) and the transition path to the new requirements. a well - capitalised banking system also means that our banks will be able to access global funding markets, even in stressed conditions while higher levels of bank capital cannot stop economic fluctuations, it can help banks with even the more moderate downturns, not just the 1 - in - 200 year event we calibrate to. research suggests that well - capitalised banks have easier access to funding than their more leveraged peers during turbulent times. 7 for the economy, this means a weakly capitalised banking system can undermine monetary policy responses to economic downturns as banks may struggle to pass through lower interest rates with their cheaper funding sources drying up. conversely, a well - capital