Under section 70 of the Reserve Bank of New Zealand Act 1989 (the Act), any person may apply to become a registered bank. The Act prescribes what factors the Reserve Bank must take into account when determining an application. These factors are listed in sections 73, 73A, 73B and 78 of the Act.
Only applicants whose business substantially consists of the borrowing or lending of money, or the provision of other financial services, may be registered as a bank. In the process of registering an institution to become a registered bank, the Reserve Bank has regard to both qualitative and quantitative criteria.
The qualitative criteria mainly relate to the applicant's financial standing and to its ability to prudently manage its business. For example, the appropriateness of the institution's incorporation and ownership structure, the adequacy of its systems and controls over its business risks, and the extent of diversification of its portfolio of loans.
The quantitative criteria act to provide some objective evidence of an applicant's ability to meet the qualitative criteria, and of its ability to carry on its business in a prudent manner on an ongoing basis following registration. For this reason, the quantitative criteria also form part of a bank's conditions of registration. These conditions are designed to promote banking system stability by constraining, but not completely removing, bank risk in certain key areas. Key prudential requirements provides further information on some important areas for which registration conditions are generally imposed.
Bank applicants who are incorporated overseas are required to have the approval of their home supervisor to conduct banking business in New Zealand, and the applicant must meet the prudential requirements imposed on it by the overseas supervisor. Accordingly, the conditions of registration that apply to branch banks mainly focus on compliance with the overseas supervisor's regulatory requirements.