Stress testing regulated entities

Our stress testing framework

We have a comprehensive stress testing framework and expect banks to invest in stress testing models and infrastructure, and carry out their own internal stress tests as part of their Internal Capital Adequacy Assessment Process (ICAAP).

In July 2018, we published a Bulletin article outlining our approach to stress testing banks, and how we interpret test results when assessing the stability of the financial system.

The Reserve Banks philosophy and approach to stress testing (PDF, 537KB) 

In May 2016, we issued a discussion document on stress testing methodology for New Zealand incorporated banks. 

Discussion document: Stress-testing methodology for New Zealand incorporated banks (PDF, 208KB)

Our stress testing programme

We provide the industry with a three-year stress testing plan to give regulated entities time to prepare and manage resources.

The 3 main phases of a stress test are generally:

• the design of a plausible but severe common scenario,
• modelling by participating entities of the scenario's impact on their balance sheet, and
• our analysis and publication of aggregate results and insights.

In addition to our industry stress tests, entities should conduct their own scenario analysis.

How often do we stress test?

Banks

• In 2026, stress testing included the 5 largest banks and 8 smaller banks. For the participating banks, we will conduct a full capital balance sheet stress test every second year (2026 and 2028) and a liquidity stress test annually.
• In the years in between the full capital stress tests, the 5 largest banks will undertake an exploratory exercise.
• Banking stress tests generally run within a calendar year, with results released in November.

Insurers

• Our insurance stress testing alternates between general insurance and life insurance. From 2026, we have included health insurers in our stress test programme.
• Insurance stress tests generally run over an 18-month period. We release aggregate results at the end of the stress test.

Industry stress test plan 2026 to 2028

The broad timing is shown in the table below. We retain the flexibility on timing and scenarios in case economic conditions and resourcing demands for entities change.