Crisis management under the Deposit Takers Act

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Deposit Takers Act

We are updating New Zealand’s crisis management framework under the new regime in the Deposit Takers Act 2023.

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What is crisis management?

Crisis management is the actions taken by deposit takers, the Reserve Bank and other stakeholders to avoid significant damage to the financial system. It includes both recovery and resolution.

Why do we need crisis management?

If a deposit taker gets into distress or fails, an effective crisis management regime is essential for minimising the serious economic damage and costs that can result, as we saw in the global financial crisis. These regimes also support a competitive and dynamic financial system, where deposit takers can enter and exit efficiently.

Crisis management sits within our broader regulatory and supervisory framework for deposit takers. The following diagram shows our staged responses to address financial distress or other difficulties.

How crisis management fits into our prudential framework

Increasing severity of stress

The first and second box show how we mitigate the probability of distress

First box:
Normal supervision

Second box:
Early detection and diagnosis

The third and forth box show how we manage the impact of distress when it arises

Third level
: Recovery - Measures undertaken by the deposit taker to restore its financial viability

Fourth box:
Resolution - Regulatory intervention to deal with the failure of an entity in an orderly manner

Fundamental shift in crisis management

To avoid significant damage to the financial system resulting from a distressed deposit taker, the DTA enhances New Zealand’s crisis management framework in line with international best practice.

The DTA modernises New Zealand’s crisis management framework by formalising our role as the resolution authority, establishing a Depositor Compensation Scheme (DCS) and providing an additional suite of powers and tools to deal with entities in distress.

In 2024, we published an issues paper on a range of policy issues related to operationalising the new crisis management regime in the DTA.

As part of the 2025 review of key capital settings, we considered the interrelationship between capital and the crisis management framework, including the balance between going concern and gone concern capital and the appropriateness of any Total Loss Absorbing Capacity (TLAC) requirements.

Among other decisions, we have decided to introduce Loss Absorbing Capacity (LAC) for the largest deposit takers. This new tool can help recapitalise a distressed deposit taker.

This means:

more use of subordinated debt instruments (Tier 2 + LAC) for the largest banks, and

changing our approach to those subordinated instruments (for example, adding conversion and write-off features), to make them work more efficiently with the Australian Prudential Regulation Authority’s (APRA’s) rules and better able to support the recapitalisation of a distressed Group 1 bank.

We intend to consult on the detailed design of LAC requirements in 2026 and 2027.

In 2026, we plan to consult on policy for a Crisis Preparedness standard and LAC requirements under sections 89 and 80 of the DTA. Before mid-2029, we will also publish a Statement of Approach to Resolution (refer to the DTA implementation timeline).

Read more about the
Issues Paper on Crisis Management under the DTA, including the consultation submissions .

Read more about the
2025 Review of key capital settings, including decision .

Read more about the
DTA implementation timeline
.