Reserve Bank Governor Alan Bollard says new rules for banks on farm lending are vital to the future stability of the New Zealand financial system.
From the end of next month, banks are to be required to hold more capital against loans to farmers.
That replaces the previous system where banks themselves decided how much capital to hold against loans.
The Reserve Bank says the new rules mean banks will have a better chance of surviving large falls in the value of land held as collateral.
It's expected, however, to lead to a restriction in farm lending.
Dr Bollard says banks abused the previous system, failing to hold enough capital against farm loans and potentially placing the banks' stability at risk.
Federated Farmers says farmers acknowledge that banks need to be prudent with their lending, but economic spokesperson Philip York says they need to avoid going from one extreme to another.
Mr York says the number one priority for farmers at the moment is reducing their debt and making the most of high commodity prices.
