2025 Review of key capital settings

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Our policy work for bank oversight

We completed a review of key capital settings for deposit takers in 2025. Final decisions were announced in December 2025.

Published:

Last updated:

2025 Review of key capital settings public consultation

Final decisions

On 17 December 2025, we announced final decisions on key capital settings for deposit takers, and on 27 February 2026, we released additional background material.

Key features of the final decisions

For the largest deposit takers (Group 1), a reduction in Tier 1 capital ratio requirements relative to the 2028 settings under 2019 Review decisions, as well as a reduction in comparison with existing capital requirements, alongside the introduction of a requirement for additional loss absorbing capacity (LAC) instruments.

For Group 2
, a reduction in both Tier 1 and total capital ratio requirements relative to the 2028 settings under 2019 Review decisions.

For Group 3
, a reduction in Tier 1 capital ratio requirements relative to the Deposit Takers Act 2023 (DTA) Capital Standard policy consultation that was published earlier in 2025 (offset by an equal increase in Tier 2 capital).

More granular standardised risk weights, including larger reductions for some categories than we proposed in August 2025, reflecting our assessment of the evidence about risks provided in submissions.

Removal of Additional Tier 1 (AT1) capital instruments.

FAQs on the final decisions

Decision documents

Decisions: 2025 Review of key capital settings (December 2025)

PDF | 686KB

A technical explanation of decisions, including an overview of submissions, high-level implementation plan, risk appetite framework, and an overview of the cost benefit analysis.

Additional background material published on 27 February 2026

Summary of submissions and policy decisions

PDF | 920KB

This document has further information about the process for transitioning to the new capital settings - covering information about capital instruments such as AT1.

Cost-Benefit Analysis

PDF | 567KB

This paper summarises the quantitative cost-benefit analysis (CBA) we used to assess the options considered during the 2025 Review of key capital settings.

Key inputs in reaching the decisions and other background information

Alongside the decisions, in December 2025 we also published 3 independent international experts’ reports and copies of the submissions received to the consultation paper (where consent has been given to publish). These were key inputs in reaching final decisions.

Thorsten Beck’s independent report
(PDF, 226KB)

Elena Carletti’s independent report
(PDF, 282KB)

Sir John Vickers’s independent report
(PDF, 345KB)

Read the submissions to the consultation paper

Document

Summary

FSOC paper - 3 April 2025
(PDF, 962KB)

Paper to Financial Stability Oversight Committee (FSOC) setting out initial analytical issues and approach for reassessing key capital settings.

FSOC slides - 14 April 2025
(PDF, 714KB)

FSOC presentation summarising early analysis and policy questions arising from the Review of Key Capital Settings (the Review).

FSOC slides - 12 May 2025
(PDF, 2.3MB)

FSOC presentation updating members on developing analysis and emerging policy considerations in the Review.

FSOC paper - 4 June 2025
(PDF, 10.2MB)

FSOC paper presenting further analysis of capital settings options and implications for financial system resilience.

FSOC paper (international experts meeting) - 9 July 2025 (PDF, 325KB)

FSOC paper prepared for engagement with international experts on analytical approaches and capital setting trade-offs.

FSOC paper - 16 July 2025
(PDF, 4.8MB)

FSOC paper advancing assessment of policy options and trade-offs ahead of advice to the Board on capital settings.

FSOC slides - 16 July 2025
(PDF, 785KB)

FSOC presentation summarising analysis and areas of judgement relevant to Board decision-making on capital settings.

Board slides - 24 July 2025
(PDF, 1.1MB)

Slides to the Board outlining key issues, options and emerging views in the Review.

Board paper - 25 July 2025
(PDF, 272KB)

Board paper providing detailed analysis and advice on options for revising key capital settings.

Te Kete for Board - 1 October 2025
(PDF, 625KB)

Te Kete summarising progress, key issues and next steps in reaching final capital decisions.

Board slides - 30 October 2025
(PDF, 6.4MB)

Board presentation updating on consultation feedback, analysis and the path toward final capital settings decisions.

Board paper - 11 December 2025
(PDF, 10.5MB)

Board paper supporting final decision-making on the Review, drawing together analysis and consultation feedback.

Initial views summary – Elena Carletti
(PDF, 126KB)

Summary of Elena’s initial views on capital adequacy, risk and financial stability considerations.

Initial views summary – Sir John Vickers
(PDF, 216KB)

Summary of John’s initial views on bank capital requirements and policy trade-offs.

Initial views summary – Thorsten Beck
(PDF, 46KB)

Summary of Thorsten’s initial views on the design and calibration of capital settings.

RBNZ #6266 – Wide-ranging evidence-based review of our capital settings (PDF, 178KB)

Briefing to the Minister describing the evidence base and analytical framework underpinning the Review.

RBNZ #6278 – Terms of reference for the capital reassessment (PDF, 244KB)

Briefing to the Minister setting out the objectives, scope and governance of the Review.

RBNZ #6288 – Update: Review of Key Capital Settings (at 29 May 2025) (PDF, 681KB)

Briefing to the Minister updating on progress, emerging issues and next steps in the Review as at May 2025.

RBNZ #6299 – Update: Review of Key Capital Settings (at 10 July 2025) (PDF, 549KB)

Briefing to the Minister updating on developments in analysis and engagement as the Review progressed in July 2025.

RBNZ #6308 – Review of Key Capital Settings: Documents to support consultation (PDF, 960KB)

Briefing to the Minister describing the analytical and consultation documents supporting the review of capital settings.

BRBNZ #6315 Update: Review of Key Capital Settings (at 5 September 2025) (PDF, 735KB)

Briefing to the Minister outlining the scope, objectives, and early direction of the Review.

RBNZ #6328 – Review of Key Capital Settings (at 31 October 2025) (PDF, 2.1MB)

Briefing to the Minister summarising progress toward final decisions, including timing and implementation considerations.

RBNZ #6331 – Meeting with independent experts on 12 November 2025 (PDF, 1.5MB)

Briefing to the Minister memo providing a record of engagement with independent experts.

RBNZ #6339 – Update on Review of Key Capital Settings at 27 November 2025 (PDF, 458KB)

Briefing to the Minister memo updating on the status of the review shortly before final decisions were taken.

Next steps

March or April 2026

Consultation intended on exposure drafts of changes to Banking Prudential Requirements (BPRs), in order to implement some key decisions of the 2025 Capital Review, before the Capital Standard comes into force in 2028.

Mid-2026

Notice to Non-bank Deposit Takers (NBDTs) provided on our intention to update licence conditions to accelerate key decisions of the 2025 Capital Review, with commencement planned soon after.

June to December 2026

Consultation planned in June to September 2026 on an exposure draft of the Capital Standard alongside other standards.

Consultation intended in June to September 2026 on detailed policy for LAC requirements and potential transitional arrangements for these requirements.

Additional review of some key topics raised in feedback to the 2025 Capital Review (such as reverse mortgages and commercial property risk weights, among others) and consultation on any changes relating to these topics in the second half of 2026.

Updated BPRs are intended to come into force on 1 October (through changes to Conditions of Registration for banks) to accelerate implementation of aspects of the 2025 Capital Review decisions.

2027 to 2028

Consultation intended in February 2027 with Group 1 deposit takers on an exposure draft of LAC requirements. At this stage we expect that these requirements will be included in the Capital Standard when the standard is issued on 31 May 2027.

The final decisions on key capital settings (including the LAC requirements) will be incorporated into the Capital Standard under the DTA, which is scheduled to take effect in December 2028.

See DTA timeline

About the 2025 Review of key capital settings

Between 2017 and 2019, we completed an extensive review of New Zealand’s capital framework. This resulted in the decision to significantly improve the quantity and quality of capital that banks are required to hold to improve the resilience of the banking system. These requirements were set to gradually phase in until 2028.

Read more about the 2017 to 2019 Capital Review

In the 2019 Capital Review, we assessed the cost and benefits of capital settings for New Zealand to inform our decision. Subsequent to this, submitters to inquiries expressed views that our bank capital settings were unreasonably conservative and that this was undermining competition and growth in the New Zealand economy.

The environment had changed since the capital settings were decided in 2019. Some factors had increased risks as discussed in Financial Stability Reports . Other factors could have reduced risk, such as debt-to-income lending restrictions and more intensive supervisory practices. We therefore considered 2025 to be an appropriate time to reassess key capital settings.

Read more about the DTA legislation and regulation

What is the purpose of bank capital?

The funding that banks raise from their owners is referred to as ‘capital’. Capital reduces the risk of failure by absorbing losses upfront and limits repercussions in the event of failure by ensuring creditors are paid.

Capital’s primary regulatory role is to absorb losses that a deposit taker might make following an economic shock, supporting it to remain viable, even during large shocks. It makes banks more resilient to such unexpected shocks, which helps to build confidence in the financial system. Capital ensures that bank owners have a meaningful stake in the business to incentivise them to manage the bank more carefully.

Background information on the review

We assessed whether the Reserve Bank’s capital requirements for deposit takers were set at the appropriate level to support a stable financial system – one where resilient financial markets, institutions and infrastructures enable a productive and sustainable economy and ultimately promote the prosperity and wellbeing of all New Zealanders.

The review built on existing work to review options for more granular risk weights for residential mortgages, corporate lending and lending for housing for community housing providers, housing co-operatives and on whenua Māori. We also considered risk weights for rural lending.

2025 Review of key capital settings - Terms of Reference (PDF, 86KB)

We considered changes to the broader context since the last review in 2019 including examining what had changed since then, such as new evidence, legislative changes and international developments.

Our assessment of the updated context fed into the targeted technical analysis. We considered whether the changes that have occurred since 2019 would affect the appropriate amount, form and distribution of capital New Zealand should have.

To inform our decisions, we undertook strategic analysis to consider a range of potential options that could best work for New Zealand. This included considering whether our risk appetite had changed, and how we do and should compare internationally.

On 25 August 2025 we published a consultation paper seeking feedback on our proposals for key capital settings for deposit takers. Submissions closed on 3 October 2025.

Read the consultation paper
(PDF, 1.9MB)

Feedback received to this consultation paper helped to inform our decision making alongside other information including from 3 independent international experts.

On 2 September 2025 we hosted a webinar with stakeholders where we presented the proposals in the consultation paper and answered questions from attendees.

Read a summary of the webinar
(PDF, 2.8MB)

We commissioned Oliver Wyman to undertake an independent assessment of how New Zealand’s current capital requirements sit relative to comparable peer countries’ capital and total LAC requirements. Oliver Wyman’s independent report supported our analysis and helped inform our proposals in the consultation paper, as well as our final decisions.

Oliver Wyman report: Comparing New Zealand Bank Capital Ratios to International Peers (PDF, 2MB)

As outlined in the terms of reference, independent international experts played a key role providing an independent challenge by reviewing our analysis, options and recommendations.

We engaged 3 independent experts, Thorsten Beck, Elena Carletti and Sir John Vickers to help challenge our analysis and support the process the Boards' decision-making process. Their biographies are below.

The experts produced independent reports of their assessment of our revised capital settings for deposit takers.

Thorston Beck

Thorsten Beck is Director of the Florence School of Banking and Finance and Professor of Financial Stability at the European University Institute. He is also the co-chair of the Advisory Scientific Committee of the European Systemic Risk Board. He is an expert in the relationship between finance and economic development.

Elena Carletti

Elena Carletti is a Professor of Finance at Bocconi University. She is also the Vice-Chair of the Board of Directors of UniCredit, a former member of the Advisory Scientific Committee of the European Systemic Risk Board and past-President of the European Finance Association. She is an expert in banking, finance and regulation.

Sir John Vickers

Sir John Vickers is a Professor of Economics at Oxford University. He is a former Chief Economist at the Bank of England and was Chair of the 2010-11 UK Independent Commission on Banking. He is an expert in competition and regulation.

We were around halfway through implementing the decisions of the 2017 to 2019 Capital Review when this subsequent review was announced. We proceeded with increasing capital requirements as initially planned on 1 July 2025, as banks were already well advanced in their plans to meet this increase.

However, we will not proceed with any further increases under the 2017 to 2019 Capital Review implementation schedule. Future capital requirements will be subject to the decisions and implementation schedule from the 2025 Review of key capital settings.

The current capital requirements for banks

The analytical approach to the Review

First column: Context

Box 1: New evidence

Underlying financial system risks

Cost of banking crises

Cost of different capital instruments

Box 2: Legislation changes

Deposit Takers Act

Financial Policy Remit

Depositor Compensation Scheme

Proportionality Framework

Crisis Management

Box 3: International context

International policy settings and developments

Second column: Technical analysis

Box 1: Amount of capital

How does new evidence affect the appropriate level of capital in the system for supporting financial stability and promoting wellbeing and prosperity?

Updating framework used in our 2019 cost-benefit analysis to account for changes.

Box 2: Forms of capital

What is the role of different capital instruments in mitigating the probability and managing the impacts of distress?

Considering the appropriateness of, and balance between, different capital instruments.

Box 3: Distribution of capital

How much capital should individual deposit takers be required to have, given their risk?

Ensuring key risk weights (mortgage, corporate, rural and others) accurately reflects risk.

Ensuring requirements are proportional to the risk posed by individual deposit takers.

Third column: Strategic analysis

Box 1: Risk appetite

How has our tolerance for failure/crisis changed since the 2019 decisions?

Box 2 (highlighted pink): Range of potential options

What combinations of capital ratios, buffers and other settings should we consider?

Box 3: International benchmarking

How do our capital settings compare internationally?

How should they compare given the risks NZ faces?

Fourth column: Outcome

Red box: Finalised capital settings