Overview of the banking oversight regime

Information on the Reserve Bank’s role in relation to banking system oversight.

Reserve Bank powers

Part 5 of the Reserve Bank of New Zealand Act 1989 (the Act) gives the Reserve Bank the powers to register and supervise banks for the purposes of:

  • promoting the maintenance of a sound and efficient financial system; and
  • avoiding significant damage to the financial system that could result from the failure of a registered bank.

There are two key elements to this role: first, undertaking bank registration and supervision; and second, maintaining a capacity to respond to financial distress or bank failure, where a bank's financial condition poses a serious threat to the financial system.

The Reserve Bank has a responsibility to promote the integrity of the financial system as a whole, and, accordingly, also has responsibilities in relation to non-bank deposit takers, insurance companies and the payments system. It also produces the Financial Stability Report. However, banks have an especially important bearing on the stability of the New Zealand financial system – for example, they play a critical role in the payments and settlements systems and in providing liquidity to the wider economy as a whole, and they are vital to the efficient allocation of savings and investment within the economy.

To enable the Reserve Bank to undertake its role under Part 5, the Act confers on the Reserve Bank a number of powers, including the power to:

  • set conditions of registration for registered banks;
  • authorise a change in ownership of a registered bank;
  • recommend public disclosure requirements to the Minister;
  • give directions to banks under certain circumstances;
  • recommend that a bank in financial distress be placed into statutory management.

In addition, the Reserve Bank monitors each registered bank's financial condition and compliance with its conditions of registration. This monitoring ensures that the Reserve Bank maintains familiarity with the financial condition and risk profile of each bank and that the Reserve Bank maintains a state of preparedness to instigate corrective actions should this be considered necessary.

The evolution of prudential supervision in New Zealand provides more information on the Reserve Bank's supervisory role.

While the Reserve Bank monitors registered banks' compliance with banking supervision policies, neither it nor the government guarantees that a registered bank will not get into difficulty or fail. New Zealand does not operate a bank deposit insurance or deposit guarantee scheme.

Bank registration

Only financial institutions that can demonstrate an ability to carry on their business in a prudent manner, and who have appropriate standing and repute in the financial markets, are permitted to be registered as banks in New Zealand. The Reserve Bank takes into account both quantitative and qualitative criteria in registering banks.

The Reserve Bank has published a set of principles (Statement of principles (BS1) (PDF 333KB) that it follows to determine the success of applications for registration, and in imposing, varying, removing or adding to conditions of registration.

Potential applicants for bank registration can obtain information and guidance from the Bank registration information document (PDF 106KB) and can consult Application for status as a registered bank (BS3) (PDF 333KB) to find information on material to be provided to the Reserve Bank.

Use of the word "bank"

Part 4 of the Act prohibits entities from using the words "bank", "banker" or "banking"and their derivatives in their name or title unless that entity is a registered bank or otherwise exempt under the Act or authorised by the Reserve Bank to use that word.

Cautions and notices

The Reserve Bank has issued the following cautions and notices in relation to financial institutions.

Archive

The Bank provides archived reports on banking sector regulation and supervision including past policy papers and Reserve Bank Bulletin articles.