A Tier 1 capital ratio of 16 percent of RWA is needed to ensure the banking sector retains creditor confidence after enduring an extreme shock.This is four times what is was 30 years ago, and Australian banks and their systemically risky subsidiaries in New Zealand are nowhere near well enough prepared for the adjustment ahead.100 per cent of bank profits will be diverted to fix up the chronic shortfall in banking, in Australia and New Zealand, thanks to drastic measures championed by the RBNZ. And respond to the royal commission mess.The Reserve Bank of New Zealand is the country's lead financial regulator, one not yet invited to join the Council of Financial Regulators.Its radical announcement on Friday leaves the notions of David Murray, the Financial System Inquiry and APRA on bank capital in the pale.Geoff Bascand, Deputy Governor and General Manager of Financial Stability, on Friday spelled out the RBNZ's intent."Insisting that bank shareholders have a meaningful stake in their bank provides a greater incentive to ensure it is well-managed. Having shareholders able to absorb a greater share of losses if the company fails also provides stronger protection for depositors."Bascand made the primal point, on that is a favourite of his employer."Bank crises happen more often than many people care to remember, and the economic and social costs of bank failures can be very high and persistent."These capital proposals for New Zealand banks (meaning, Australian banks) are designed to make bank failures less frequent, Bascand said. "With these changes we estimate the banking system will be resilient to shocks that might occur only once every two hundred years," he said.The proposal would see banks' capital levels increase materially, he explained."We are proposing to almost double the required amount of high quality capital that banks will have to hold."In practice, actual changes to the amount that they hold will be less than double and will vary, the RBNZ said. The increase will depend on their current levels of capital, how much extra they choose to hold above the required minimum, and whether they are a large or small bank. Bascand said: "Generally, it will be an increase of between 20 and 60 percent. This represents about 70 percent of the banking sector's expected profits over the transition period. We expect only a minor impact on borrowing rates for customers."While borrowing costs may increase a little, and bank shareholders may earn a lower return on their investment, we believe these impacts will be more than offset by having a safer banking system for all New Zealanders," he said.The RBNZ is consulting on a five-year transition period for banks to meet the new requirements and requests feedback. The details are here. ??Deadline:  29 March 2019.