An International Monetary Fund research paper into New Zealand's four systemically important banks has suggested they be required to put aside more capital to cope with the potential for shocks in both the housing sector and in corporate lending.In the IMF paper, New Zealand Banks' Vulnerabilities and Capital Adequacy, the authors, Byung Kyoon Jang and Masahiko Kataoka, wrote: "Higher capital buffers at systemically important domestic banks in New Zealand would be beneficial, particularly in times of market uncertainty and given high bank concentration and their large offshore wholesale funding needs." New Zealand's Big Four banks are ANZ New Zealand, Westpac NZ, National Australia Bank's BNZ and Commonwealth Bank of Australia's ASB. They have a combined share of total bank assets of almost 90 per cent, and have 95 per cent of the mortgage market. Their loans represent 140 per cent of New Zealand's gross domestic product. They continue to have relatively high short-term foreign funding, representing around 50 per cent of GDP, whereas Australia's short-term foreign funding is worth around 40 per cent of GDP.The paper said it found the New Zealand banks' capital ratios were lower than average for comparable countries, but that the more conservative approach adopted by the Reserve Bank of New Zealand around Basel II rules meant their headline capital ratios underestimated their capital strength.Despite this, the paper said that a combined shock to both the home mortgage and corporate lending markets would significantly reduce capital."For example, a hard landing in China, and thus Australia, would consequently reduce demand for New Zealand exports, worsen terms of trade, and could trigger a sudden decline in house prices. This could in turn weaken consumer demand and growth, and negatively affect banks' balance sheets. The downside macroeconomic impact of such a scenario could be substantial," the paper said.It suggested higher minimum capital requirements and a core funding ratio higher than the planned minimum of 75 per cent.