Branches of foreign banks may get a variation to the minimum core funding ratio requirements announced by the Reserve Bank of New Zealand in its new liquidity policy.Of the four major Australian banks, three of them operate in New Zealand as a branch - ANZ, Commonwealth and Westpac.The variation would be on a case-to-case basis and will be considered only when there is a strong case for non-standard conditions, the Reserve Bank said. In considering any variation, the Reserve Bank will consider whether the branch's presence in New Zealand qualifies as large, its role in the financial systems and the robustness of the international banking group's policies for liquidity risk management.In cases where a locally incorporated registered bank exists along with a branch, the Reserve Bank will consider the potential for the branch to be used to subvert the effectiveness of the liquidity requirement applying to the incorporated bank.In New Zealand, ANZ Bank, Westpac and Rabobank Nederland are the three overseas banks that operate both as a locally incorporated entity and as a branch.The new liquidity policy, to be implemented via an amendment to the existing conditions of registration, targets an ultimate core funding ratio of 75 per cent to ensure that banks maintain strong liquidity positions, and will be more resilient to both short-term and long-lasting funding shocks.The one-year core funding ratio is expected to be at least 65 per cent to September 30, 2010, at least 70 per cent after that date and before September 30, 2011, and at least 75 per cent after that date.Banks are also required to have an internal framework for liquidity risk management that manages its liquidity risk at a prudent level.The Reserve Bank has acknowledged that over the medium term, lending rates could rise by 10 to 20 basis points if the current high premium on term rates persists.The Reserve Bank proposes to impose the new liquidity policy through its revised registration conditions from September 30, 2009.The Reserve Bank will shortly also finalize reporting requirements for liquidity-related data. It is currently working on minor refinements to minimize any duplication between what the subsidiaries of Australian banks have to report to the Reserve Bank and what they may need to report to APRA.Changes to the disclosure requirements are also planned, but this will take some time as the Reserve Bank is undertaking a major review of its disclosure regime for registered banks.