The Reserve Bank is responsible for the Prudential regulation of the New Zealand banking system to ensure that the system remains healthy, however it does not guarantee that a bank will not fail, or face problems.
As of April 2023 there are 27 registered banks.
New Zealand-incorporated registered banks are required to maintain a minimum level of capital relative to their risk-weighted assets, measured by their Capital adequacy ratio. This helps ensure that banks have enough money to cover any losses they might incur.
policy mandating the minimum amount that a commercial bank must hold in liquid assets. The liquidity policy of New Zealand's locally incorporated registered banks is primarily governed by two banking prudential requirements documents: 'Liquidity policy' (BS13) and 'Liquidity policy annex – liquid assets' (BS13A). These documents are part of the banks' conditions of registration. Additionally, reporting requirements are imposed under section 93 of the Banking (Prudential Supervision) Act 1989.
All registered banks operating in New Zealand must issue a quarterly disclosure statement, which the Reserve Bank scrutinise. The purpose of these disclosure statements is to assist depositors to make sound decision and encourage banks to maintain sound banking practices
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A key information summary that provides a brief overview of the bank's financial condition
General disclosure statement to provide comprehensive information on the bank
Supplemental disclosure statement
Credit Ratings
Under section 80 of the BPSA 1989, the RBNZ requires that all registered banks must have a valid credit rating for their long-term, senior, unsecured obligations in New Zealand dollars. These ratings, provided by independent agencies, assess a bank's financial stability and likelihood of repaying its debts. The RBNZ maintains a register of these ratings for each registered bank, which are also disclosed in the banks' semi-annual statements.
Outsourcing, BS11
The RBNZ outsourcing policy, Banking Standard 11, applies to large New Zealand-incorporated registered banks.
Outsourcing occurs when a bank uses another party to perform business functions that would traditionally have been undertaken by the bank itself. Common examples include IT processing, accounting, and call centers.
The outsourcing policy aims to ensure that large banks have the legal and practical ability to control and execute outsourced functions. It ensures that outsourcing arrangements do not compromise a bank's ability to be effectively administered under statutory management and operate for the purposes of continuing to provide and circulate liquidity to the financial system and the wider economy.
The bank must be able to facilitate basic banking services by any new owner of all or part of the bank. They must also address the impact of service or function provider failures on the bank's ability to carry on its business.
Large banks must achieve specific outcomes, including:
Meeting daily clearing, settlement, and other time-critical obligations.
Monitoring and managing financial positions (credit, liquidity, and market risk).
Providing basic banking services to existing customers, including liquidity and account activity reporting.
Connected Exposures, BS8
NZ registered banks are required to report their large exposures to RBNZ. This includes not only the large exposures but also the 20 largest exposures, even if they do not meet the large exposure threshold.
Connected exposures occur when multiple counterparties are linked through control relationships or economic interdependence. For example, if one company controls another, or if the financial health of one entity directly affects another, they are considered connected.
The Basel Committee on Banking Supervision (BCBS) has set guidelines to limit large exposures. A large exposure is defined as any exposure that is 10% or more of a bank's Tier 1 capital. For global systemically important banks (G-SIBs), the limit is stricter, capping exposures to other G-SIBs at 15% of Tier 1 capital.
These regulations aim to prevent banks from incurring significant losses due to the default of a single counterparty or a group of connected counterparties. This helps in maintaining the stability of the financial system by reducing the risk of cascading failures.
Open Bank Resolution, BS17
'Open Bank Resolution (OBR)' is a tool for dealing with a bank failure. OBR allows authorities to reopen a failed bank the next day under statutory control. It seeks to prevent abrupt disruptions to the bank's essential functions. while a long-term solution to the bank's failure is found, customers can promptly access their accounts to make and receive payments.
OBR places the cost of a bank failure on the bank's shareholders and creditors, rather than taxpayers. Shareholders lose their investment first, followed by creditors if necessary.
Creditor claims may be frozen to absorb losses, and they may suffer financial loss if the bank is unable to satisfy its obligations.
In the absence of OBR, the only ways to deal with a bank failure are liquidation, government bailout, or acquisition by a competitor.
OBR covers banks with local incorporation that have more than $1 billion in retail deposits. The OBR programme is voluntary for other registered banks to participate in.
Macroprudential regulation
The goal of Macroprudential regulation is to reduce the likelihood of a financial crisis by limiting excessive lending during upturns and making banks and households more resilient during downturns. It focuses on risks to the financial system as a whole.
A Memorandum of Understanding between the Minister of Finance and the RBNZ Governor defines macroprudential policy and has guidelines for how we use the policy.
Trans-Tasman Council on Banking Supervision
The RBNZ is a member of the council, which promotes the coordination and harmonisation of trans-Tasman bank regulation, where appropriate. Its mandate also covers potential issues relating to financial stability, efficiency, and integration throughout the wider financial sector.
Council of Financial Regulators (CoFR) – Kaunihera Kaiwhakarite Ahumoni
The Council of Financial Regulators (CoFR) is an inter‑agency coordination forum for New Zealand's financial system regulators. Its purpose is to promote effective and coherent regulation of the financial system by facilitating information‑sharing, coordination of regulatory initiatives, and discussion of system‑wide risks that cut across individual regulatory mandates.
CoFR comprises senior representatives from RBNZ and the following agencies:
Financial Markets Authority
New Zealand Treasury
Ministry of Business, Innovation and Employment
Commerce Commission (New Zealand)
The Council is jointly co‑chaired by the Reserve Bank of New Zealand and the Financial Markets Authority.
Basel Committee on Banking Supervision
The Reserve Bank largely follows the 2010 Basel III standards in implementing its bank capital requirements.
Deposit Takers Act
In June 2023 the Deposit Takers Act replaced the RBNZ Act 1989 and the NBDTA 2013 as the foundational law regulating Deposit Takers (New Zealand banks, building societies and credit unions).
It creates a single regulatory regime for all deposit takers and a deposit insurance scheme.
Regulation of non-bank deposit takers (NBDTs)
Under Part 5D of the RBNZ Act 1989, the RBNZ was charged with the enforcement of the credit rating and prudential requirements applying to non-bank deposit takers (NBDTs) in New Zealand. These functions were introduced by the enactment of the Reserve Bank of New Zealand Amendment Act 2008.
Under the NBDT 2013 the RBNZ acts as the prudential regulator and licensing authority for NBDTs.
