The Reserve Bank of New Zealand has issued a consultation paper on proposals for four macro-prudential tools to reduce financial system risk and dampen the sort of excessive credit growth and asset price inflation that led to the global financial crisis.The Reserve Bank has asked for feedback by April 10 on a process that has recently been accelerated. Finance Minister Bill English said in a speech last week that the Government and the Reserve Bank planned to have the tools and their framework ready to use by mid-2013. The Reserve Bank is increasingly worried about an over-heated housing market in Auckland and a surge in high loan-to-value ratio lending in the last six months. The bank spelled out more detailed proposals for a counter-cyclical capital buffer, changes to the existing core funding ratio, sectoral capital requirements and limits on LVRs for home mortgages."It is important to note that these tools would not replace the existing prudential regulation of banks already carried out by the Reserve Bank, but would be supplementary tools, used from time to time to help manage risks arising from the credit cycle," deputy governor Grant Spencer said.The bank said it already planned to bring in a counter-cyclical capital buffer as from January 2014 under the existing Basel III framework and was not seeking feedback on this tool. There were few surprises in the detail of the four tools, although the bank also suggested limits on the proportion of high LVR lending, as well as simple limits on LVRs.The bank did point to the risk that tools applied to local institutions could see customers diverted to foreign banks or non-banks, and that LVR limits could restrict loan access to first-home buyers.Westpac senior economist Michael Gordon said the bank appeared not to favour one tool over the other and was unlikely to be in a position to use any of the tools before the end of the year. Gordon also said the tools were not an alternative to using the Official Cash Rate to manage the economy. "The evidence is mixed as to whether they can influence borrowing costs and/or property prices," Gordon said.ASB senior economist Jane Turner said the bank may look to introduce LVR limits later this year if lending growth continues to accelerate.