Resolution and Crisis Management Powers

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Cross-sector collaboration

We have powers under legislation to manage incidents that could affect the stability of New Zealand's financial system.

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Our Statement of Prudential Policy sets out our approach to resolution and the principles we consider when undertaking resolution.

Statement of Prudential Policy

What is resolution

If an entity we regulate is in significant distress or fails, we have powers under legislation to:

intervene

directly manage their resolution

We also have crisis management powers to manage flow-on effects to the New Zealand financial sector from unexpected events such as:

natural disasters

offshore incidents which impact global financial markets.

Principles that guide how we make resolution decisions

We aim to:

prevent damage to the financial system

maintain public trust and confidence

maintain the continuity of essential services provided by regulated entities

minimise calls on public funds.

We plan and co-ordinate with the Treasury and our peer regulators — for example, Financial Markets Authority (FMA) to minimise potential financial stability impacts from a failure or other event. We also coordinate our responses with overseas regulators as required — for example where there is trans-Tasman ownership of a regulated firm.

Our resolution and crisis management powers under legislation

Our objectives under section 9 of the Reserve Bank of New Zealand Act 2021 include a financial stability objective of protecting and promoting the stability of New Zealand’s financial system. If an incident occurs that threatens the stability of the financial system, the Act requires us to manage the impact — for example by providing liquidity facilities to approved entities or by dealing in foreign exchange.

We have additional powers to deal with the failure of a registered bank under the Banking (Prudential Supervision) Act 1989, including recommending that a bank be placed under statutory management.

We have a variety of similar powers under the Insurance (Prudential Supervision) Act 2010 and the Financial Market Infrastructures Act 2021 to deal with the failure of a licensed insurer, or a designated financial market infrastructure that is systemically important.

You can view the Acts on the New Zealand legislation website.

Reserve Bank of New Zealand Act 1989

Reserve Bank of New Zealand Act 2021

Banking (Prudential Supervision) Act 1989

Insurance (Prudential Supervision) Act 2010

Financial Market Infrastructures Act 2021

Open bank resolution policy (OBR)

Open bank resolution policy (OBR) is a tool we use if a bank fails to avoid significant damage to the financial system.

It involves providing the government with options to help manage fiscal risks and minimise spill-over effects to the rest of the economy while maintaining depositors access to a portion of their funds. Under OBR, the failed bank is open for business the next business day from when the insolvency event occurred and can provide depositors access to their accounts and other banking services. In a closed bank resolution, the bank remains closed after the insolvency event, and depositors no longer have access to their bank accounts.

OBR mitigates the harmful effects to the wider economy that arise after prolonged disruption to the payment system when a bank is closed.

Open Bank Resolution