In its submission on the Reserve Bank of New Zealand's proposals to force banks to hold more capital, Westpac NZ says the change could add NZ$6000 a year to the cost of an average Auckland mortgage.
Submissions on the proposed changes have now closed. The RBNZ says it will release all submissions, plus its summary, next month but Westpac released its own submission, in which it warns of a "significant negative impact" on the economy.
It disagrees with the Reserve Bank's view that the proposed increase in minimum capital requirements will only add between 20 and 40 basis points to the cost of a home loan, an amount it says would be lost in "noise" around interest rate changes. Westpac says the increase will more likely be more than 100 bps.
It says the central bank has not provided quantitative justification for its proposals, the analysis as provided to submitters is "materially incomplete and flawed" and it risks shaving 1.3 per cent off New Zealand's annual GDP.
"The proposals have essentially assumed that New Zealanders would be willing to pay for protection against a banking crisis occurring within a period equivalent to that from the time between the failure of the Medici Bank in 1494 through the South Sea Bubble in 1720 to today," Westpac's submission says.
It also criticises the RBNZ's for over-reaching with its proposal to limit the advantage the Big Four Australian-owned banks get from using their own internal modelling to calculate risk-weighted capital when the other, smaller, locally-owned banks have to use standardised models.
Westpac says: "the concept of 'levelling the playing field' between banks is not currently within the statutory mandate of the RBNZ".