At the release of the RBNZ's six-monthly Financial Stability Report, governor Adrian Orr said domestic financial risks had eased in the past six months, but global financial vulnerability had risen. "We have significant build up in debts and asset prices and the ongoing geo-political tensions and trade challenges overhang financial markets," Orr said."This vulnerability is highlighted by the current elevated volatility in equity and debt market pricing at present and that will be on a watching brief."He said the bank had been using this "period of relative calm" to assess whether the banking system has sufficient capital to weather future extreme shocks - and has concluded that New Zealand's banks and insurers are under-capitalised.The RBNZ is currently finalising increased capital requirements for the banking system, and will announce them in mid-December.Orr was not specific on how much extra capital the banks would be required to hold, saying simply that it was "north of where we are". "There is no science to this so we have been calibrating it to where we have sufficient capital to where the banking system is both sound through many economic conditions as well as efficient, so we are finding that optimal, that sweet spot, and that sweet spot is north of where bank capital has currently been."Asked if the capital review would involve the ditching of internal capital models as used by the Australian-owned banks, deputy governor Geoff Bascand said the RBNZ expected to allow the banks to retain IRB modelling, but would "floor it" (meaning place a floor under their use)."We expect to constrain the extent to which you can deviate from the standardised models," he said."We think the use of it has become excessive to the actual risk differentiation."