we plan to conclude the review by the first quarter of 2018. conclusion today i have discussed the context for the upcoming capital review and outlined a number of 7 / 9 bis central bankers'speeches key issues that the reserve bank will be considering over the coming year. capital policy has multiple dimensions and trade - offs and we will welcome your views as we consult on the various aspects. we will assess the current framework and recommend policy changes in the context of international developments, new zealand ’ s risk profile and the reserve bank ’ s regulatory approach. in doing so, we will be guided by principles that broadly promote conservatism and simplicity. we will ensure that the quantity and quality of banks ’ capital remain consistent with promoting a sound and efficient financial system. thank you for the opportunity to share these ideas with you today. 1 ‘ financial system inquiry – final report ’ ( 2014 ). 2 for further discussion of the reserve bank ’ s adoption of the basel iii standards, and the rationale for minimum capital requirements more generally, see the bulletin article ‘ the reserve bank ’ s application of the basel iii capital requirements for banks ’ ( 2015 ). 3 basel iii monitoring report ( february 2017 ) ’. 4 these figures are for the 100 “ group 1 ” banks under the basel quantitative impact study definition, i. e. banks with tier 1 capital in excess of €3bn, who are well diversified and are internationally active. “ group 2 ” banks, which are the 110 other banks that participate in the qis, reported a median cet1 ratio of 13. 9 %, with a 25th and 75th percentile of 11. 4 % and 18. 3 %. 5 see, for instance, the bulletin article ‘ bank farm capital : does it cost the earth? ’ ( 2011 ). 6 the australian housing risk weight is in the process of being increased to an average of 25 %. 7 data as at most recent pillar 3 regulatory disclosure. sample includes anz, cba, nab, wbc ( australia ), bmo, cibc, rbc, scotiabank, td ( canada ), danske, nordea dk, jyske, nykredit, sydbank ( denmark ), anz, asb, bnz, wnzl ( new zealand ), handelsbanken, nordea group, seb, swedbank ( sweden ), barclays, co - operative, hsbc, lbg, nbs

we need to understand how the idiosyncrasies and relative conservatism of new zealand ’ s approach to the basel framework affects the headline capital ratios of new zealand banks compared to peer country banks. the basel committee regularly publishes reports that compare banks ’ capital levels on an unadjusted basis. the most recent report3 has the large internationally active banks reporting a median common equity tier 1 ( cet1 ) ratio of 12. 1 %, with 25th and 75th percentiles of 10. 9 % and 13. 8 %. at the same date, our four largest banks reported a weighted average cet1 ratio of 10. 5 %, putting them, on an unadjusted basis, in the bottom quartile. for the entire new zealand banking system, tier 1 capital ratios have also been at the lower end of international comparisons. however, such comparisons can be misleading as countries have implemented the basel framework in different ways. the reserve bank has made a number of amendments to better reflect new zealand risks, for instance our farm lending adjustments raise the average risk weight on banks ’ exposures by around 20 – 30 percentage points compared to a usual implementation of the irb framework. 4 risk weights on residential mortgages are also higher than for a range of peer countries, as seen in table 1. the relatively cautious approach adopted in new zealand with regard to risk measurement means that, on a like - for like basis, new zealand ’ s relative capital position should be higher than the headline ratios suggest. the question is by how much. table 1. housing risk weights for selected countries ( large banks ) 2 / 9 bis central bankers'speeches country weighted average risk weight australia 23. 5 % 5 canada 7. 2 % denmark 13. 9 % new zealand 28. 3 % sweden 6. 8 % united kingdom 11. 7 % source : pillar 3 reports6 apra has also applied the basel framework on a relatively conservative basis. 7 taking into account differences in the calculation of capital and risk - weighted exposures, apra estimated that the australian major banks ’ cet1 capital ratios, as at december 2015, would be 3. 5 percentage points higher if calculated on a more internationally comparable basis. running a similar analysis on the new zealand framework, we estimate that cet1 ratios are roughly equivalent to at least an additional 1 to 2 percentage points of cet1 capital under an internationally normalised regime. this adjustment would place our four largest banks in the second