The Reserve Bank of New Zealand reaffirmed its direction to banks to lengthen the maturity of their foreign funding and to raise funds more from local retail sources. Deputy governor Grant Spencer told a news conference yesterday after the Reserve Bank released its half-yearly Financial Stability Report that the banks had not improved their vulnerability much since the beginning of the global financial crisis last year. New Zealand's banks still have more than 40 per cent of their international funding maturing in less than 90 days, the report shows.New Zealand's major banks are, of course, subsidiaries of Australia's major banks and in the context of the dislocation in worldwide capital markets over the last eight months have tended to source offshore funding from their owners."There hasn't been a major movement in that because the banks came into the crisis with a relatively high proportion of short-term funding and once you get into the crisis the term funding is harder to get, so it's hard to correct that imbalance during the difficult period," Spencer said."In the longer term we would expect an improvement, with a greater proportion of long-term funding and retail funding relative to short-term funding," he said."We can't expect them to correct it immediately when the markets are very tight and the term-funding markets continue to be expensive and funds are hard to get."The Reserve Bank's Head of Prudential Supervision, Toby Fiennes, said the bank was in the final stages of formulating a new policy on bank liquidity after consulting with banks. It was likely to announce a new policy in late May."The key thing will be the core funding ratio which we'll be bringing in. The liquidity policy went out for consultation in December. We've been recalibrating that core funding ratio with them. We should be in a position later this month to release the policy finally," Fiennes said.The core funding ratio is the retail deposit base and the longer term wholesale funding as a percentage of assets. The target ratio at present is around 60 per cent to 70 per cent and the RBNZ wants to raise this ratio.Interest.co.nz