Regulatory Alerts2022-02-27
Requirements for domestic systemically important banks
The Reserve Bank of New Zealand mandates that four major banks—ANZ, BNZ, ASB, and Westpac—are designated as domestic systemically important banks (D-SIBs) due to their critical role in the highly concentrated national financial system. These institutions must maintain an additional Common Equity Tier 1 capital buffer equal to 2% of their total risk-weighted assets to enhance loss-absorbency. The regulatory requirement is being phased in, with the first 1% effective from July 1, 2022, and the remaining 1% taking effect on July 1, 2023.
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Standards and requirements for banks
Our framework for identifying domestic systematically important banks (D-SIBs) and the capital requirements for these banks.
Published:
The framework for identifying D-SIBs
We consulted on a framework for identifying domestic systematically important banks (D-SIBs) in 2019. We published our response to the submitters’ feedback and our preferred methodology for identifying D-SIBs in August 2019.
A framework for identifying D-SIBs consultation
We can confirm that we will give equal weighting to all 4 dimensions that we consider when determining the importance score, that is size, interconnectedness, substitutability and complexity.
The D-SIB scores are indicative and we have decided not to have a pre-set threshold above which a bank is automatically identified as a D-SIB. Instead, we will base our decisions on our supervisory knowledge to determine the list of D-SIBs.
Why some banks are identified as D-SIBs
New Zealand has a highly concentrated banking system with almost 90% of the total banking system assets owned by the 4 main banks (ANZ, BNZ, ASB and Westpac).
The failure of any of these 4 banks is likely to result in significant disruption to the New Zealand financial system and economy. For this reason we decided additional loss-absorbency requirements, in the form of additional CET1 capital, should be required for banks identified as D-SIBs.
More information
A framework for identifying D-SIBs consultation
Review of the capital adequacy framework for registered banks
The buffer ratio requirement for D-SIBs
We also consulted in 2019 on additional capital buffer requirements for D-SIBs and later that year identified that these banks would need an additional buffer as part of the capital adequacy framework.
D-SIBs must have a buffer ratio requirement of 2% of their total risk-weighted assets. This ratio needs to be met with common equity capital.
We are phasing in the requirement, with the first 1% due to take effect on 1 July 2022, and the second 1% on 1 July 2023.
Which banks are identified as D-SIBs
We have identified the following banks as D-SIBs:
ANZ New Zealand Limited
Bank of New Zealand
ASB Bank Limited
Westpac New Zealand Limited.
We will update this list if there is a change. When a bank is added to the list, we will agree the length of any transition period before the bank is subject to the full D-SIB buffer ratio.