The Reserve Bank of New Zealand has relaxed its liquidity policy for Bank of New Zealand, giving the bank an extension until October 31 to fully comply with the norms on mismatch ratios and the core funding ratio.The extension relates to the calculation of non-market funding that is used while arriving at the one-week and one-month mismatch ratios, and the one-year core funding ratio. The bank is allowed to calculate the ratios without applying the requirements mentioned in the RBNZ's liquidity policy.While arriving at the ratio, a bank has to minus non-market funding by first allocating the provider of that funding to a size band corresponding to that provider's total assets held at the bank on that date. For example, for a size band of up to NZ$5 million, only 5 per cent of the market funding is included as outflow, and for a band of over NZ$50 million, 80 per cent of the market funding is included.There are exceptions in the calculation when the provider is a body corporate other than a Crown or government organisation, and in cases of deposits held at the bank as a trustee or when a deposit is owned by a person but a third party has the right to withdraw it.The RBNZ's liquidity policy came into effect on April 1. It is initially monitoring compliance through monthly private reports from the banks and plans to use the information gathered through this process to make future increases in the minimum core funding ratio, as appropriate. The tentative plan is to increase the CFR to 75 per cent from the current 65 per cent by mid-2012.Banks are required to disclose any breaches of the policy in their General Disclosure Statements and the RBNZ is currently reviewing the disclosure norms to consider what shape future disclosures should take.