Core funding lift pushed out to 2013

The Reserve Bank is taking some pressure off the banks by deferring for six months a further increase in the minimum core funding ratio it requires them to meet.

The aim is to reduce "rollover risk" - the risk that when they need to renew short-term wholesale funding the markets will have frozen, as they did during the global financial crisis.

The core funding ratio was due to rise to 75 per cent in July; that has now been pushed out to 2013.

Most banks have increased their capital and liquidity buffers and are now better placed to deal with market turbulence, deputy governor Grant Spencer said. But they needed to be able to use those buffers in tough times, otherwise they were no good to them.

If they were forced to raise more, expensive, funding from longer-term markets it could reduce the availability and raise the cost of credit in the economy.

Offshore funding falling due within 90 days has fallen from the equivalent of 50 per cent of GDP in 2008 to 35 per cent now, of which two-thirds is held by the banks. The longer maturity of banks' funding, combined with weak credit growth, has meant they have not needed to issue longer-term debt in recent months.

But the Reserve Bank said when they do it was likely funding costs would be "materially higher".