Reserve Bank of New Zealand deputy governor Grant Spencer yesterday outlined the context and scope of a review into NZ banks' capital requirements, to be conducted over the coming year. During a speech to the New Zealand Bankers Association in Auckland, Spencer set out the broad principles that will guide the review, foreshadowing an issues paper to be released in April. "Detailed policy positions and options for changes to the capital framework will be outlined in consultation papers during the year. We aim to conclude the review by the first quarter of 2018," Spencer said.The review is in part a response to Australia's Financial System Inquiry, which has seen APRA implementing the FSI recommendations for banks' capital ratios to become "unquestionably strong", in line with the top quartile of internationally active banks.Based on the Basel Committee's reports on banks' capital levels, NZ's four largest banks reported a weighted average Common Equity Tier 1 ratio of 10.5 per cent, putting them, on an unadjusted basis, in the bottom quartile of international banks.Conversely, running a similar analysis on the New Zealand banks to that applied by APRA to the Australian system, Spencer estimated comparable CET1 was understated by one to two percentage points, notionally placing NZ's banks in the second or third quartile."In New Zealand, our broad approach has been to adopt the Basel standards, where appropriate, and implement them with a conservative bias," Spencer said.  It is becoming less clear, however, whether New Zealand's historical position on bank capital is being maintained relative to Australia and other peers. The economics analysts at JP Morgan observed that it would also not be the first time that NZ banks' capital requirements have increased in recent years: "The details provided today suggest the increase in capital requirements could be meaningful, as NZ banks have relatively low unadjusted CET1 ratios (bottom quartile globally), and as Australian regulation now untethers NZ banks from their Australian parents, such that the implicit funding support also comes into question," JP Morgan wrote in a note to clients.This point had not eluded Spencer."Should implicit parental support be eroded, it is important that our banks be seen as strong on a standalone basis in order to maintain their international standing," he said.