RBNZ consults on crisis preparedness for deposit takers

The Reserve Bank of New Zealand (RBNZ) is seeking feedback on policies that will inform standards under the Deposit Takers Act 2023 (DTA).

These standards are crucial for the new crisis management framework, which includes crisis planning, pre-positioned recovery measures for deposit takers, and a 'crisis response waterfall' of resolution options.

The RBNZ, now the designated resolution authority for New Zealand, is developing orderly resolution plans for each deposit taker.

This multi-year program reflects international best practice, which has increasingly prioritized crisis preparedness since the 2008 global financial crisis and the 2023 banking turmoil.

The proposed standards are designed to ensure deposit takers are well-prepared for severe financial stress, covering areas like data, funding, governance, and continuity of service.

The new framework places greater emphasis on pre-positioning the full resolution process, a shift from the existing Open Bank Resolution (OBR) policy.

While OBR aimed to avoid liquidation disruption and minimize public funds impact, its longer-term resolution solutions were decided post-crisis.

The new pre-positioned solutions are expected to reduce resolution times.

Notably, the RBNZ no longer anticipates the need for a partial 'freeze' on transactional accounts, a feature of the OBR policy.

The consultation also proposes detailed implementation for new Loss Absorbing Capacity (LAC) instruments for Group 1 deposit takers, designed to facilitate a trans-Tasman approach to resolving the four largest New Zealand deposit takers, which are subsidiaries of Australian banking groups.

These instruments can downstream capital to a New Zealand subsidiary if it faces failure.