RBNZ reviews banks' risks

The Reserve Bank thinks the rules protecting against this risk are not working as well as they should.

It fears an overly conservative interpretation of the rules is putting a handbrake on banks' daily business activities. 

The problem is an extension of recent changes that increased the amount of capital that banks must hold. This was intended to reduce the risk of banking failure, which has happened overseas and been calamitous for thousands of people.

But banks don't just face risks from their daily lending, but from the ancillary activities of people at the bank. This danger is known as connected persons exposure.