How we regulate and supervise banks

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How we regulate and supervise banks

Information on our powers under the Banking (Prudential Supervision) Act 1989 to register and supervise banks including bank registration and use of the word bank.

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Our powers under the Act

Our powers to register and supervise banks under Part 5 of the Act are for the purpose 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.

The 2 main aspects of our role are:

undertaking bank registration and supervision

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.

Part 5 of the Act also confers on us certain powers specific to banks. These are 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.

Read about registered banks disclosure regime

We also monitor each registered bank's financial condition and compliance with its conditions of registration. This monitoring ensures we remain aware of each bank's financial condition and risk profile and are prepared to take corrective action if necessary.

More information about the evolution of prudential supervision in New Zealand is available in Bulletin articles in the publication library .

Why banks are important to financial stability

Banks have an important role to play in maintaining the stability of the New Zealand financial system. For example, they play a critical role in the payments and settlements systems and in providing cash flow (liquidity) to the wider economy as a whole. They are also vital to savings and investment being allocated efficiently within the economy.

While we monitor registered banks' compliance with our banking supervision policies, neither we nor the Government guarantees that a registered bank will not get into difficulty or fail. In the unlikely event that a failure does occur, the Depositor Compensation Scheme (DCS) protects depositors of the failed deposit taker by up to $100,000.

Learn more about the Depositor Compensation Scheme (DCS)

Bank registration

Only financial institutions that can demonstrate an ability to carry on their business in a prudent manner, and who have a sound reputation in the financial markets, are permitted to be registered as banks in New Zealand.

When registering banks, we take into account both quantitative and qualitative criteria and follow a set of principles (BS1 of the Banking Supervision Handbook) when assessing applications or when imposing, varying, removing or adding to conditions of bank registration.

Read the statement of principles for banks' regulation and supervision (BS1) on the Banking Supervision Handbook page

Potential applicants for bank registration can get information about registration on the bank registration page.

Read more about our bank registration

Use of the word 'bank'

Part 4 of the Act prohibits organisations from using the words 'bank', 'banker' or 'banking' (and words derived from these words) in their name or title unless they are a registered bank or otherwise exempt under the Act or authorised by us to use that word.

Read more about use of the word 'bank'

Warnings

We issue warnings to financial institutions when they have not met their regulatory obligations or requirements.

How we enforce regulations