RBNZ considers LVR restrictions

These tools include placing restrictions on loan-to-valuation ratios (LVRs) - for example, allowing bank to lend no more than, say, 80% of a property's valuation - forcing banks to hold set percentages of more expensive deposit funding or longer-term wholesale funding and altering the amount of capital banks are required to hold against loans on specific assets such as houses or farms.

LVR restrictions could act as a brake on credit growth during a boom and have the advantage of being imposed and enforced relatively swiftly, Reserve Bank governor Alan Bollard told a conference on banking regulation in Sydney last week.

A number of different tools might be used in tandem and their potency could be enhanced by a 'moral suasion' effect as well as their direct impacts, he said.

"The deployment of any tool would send an important signal to financial institutions, investors, rating agencies and the general public about the central bank's unease about rapid credit growth."