• A material lift in bank capital is on the cards.
• If implemented it is likely to result in a combination of higher lending rates, lower deposit rates and potentially lower returns on equity.
• The landscape of lending markets is also likely to change, with Australian banks becoming more discerning about the volume of lending to low return sectors and we may see the emergence of non-bank lenders.

The proposal by the Reserve Bank of New Zealand (RBNZ) to lift capital held in New Zealand by banks has significant implications for the economy.