The framework for identifying D-SIBs
We consulted on a framework for identifying domestic systematically important banks (D-SIBs) in 2019. We published our response to the submitters’ feedback and our preferred methodology for identifying D-SIBs in August 2019.
We can confirm that we will give equal weighting to all 4 dimensions that we consider when determining the importance score, that is size, interconnectedness, substitutability and complexity.
The D-SIB scores are indicative and we have decided not to have a pre-set threshold above which a bank is automatically identified as a D-SIB. Instead, we will base our decisions on our supervisory knowledge to determine the list of D-SIBs.
Why some banks are identified as D-SIBs
New Zealand has a highly concentrated banking system with almost 90% of the total banking system assets owned by the 4 main banks (ANZ, BNZ, ASB and Westpac).
The failure of any of these 4 banks is likely to result in significant disruption to the New Zealand financial system and economy. For this reason we decided additional loss-absorbency requirements, in the form of additional CET1 capital, should be required for banks identified as D-SIBs.
The buffer ratio requirement for D-SIBs
We also consulted in 2019 on additional capital buffer requirements for D-SIBs and later that year identified that these banks would need an additional buffer as part of the capital adequacy framework.
D-SIBs must have a buffer ratio requirement of 2% of their total risk-weighted assets. This ratio needs to be met with common equity capital.
We are phasing in the requirement, with the first 1% due to take effect on 1 July 2022, and the second 1% on 1 July 2023.
Which banks are identified as D-SIBs
We have identified the following banks as D-SIBs:
- ANZ New Zealand Limited
- Bank of New Zealand
- ASB Bank Limited
- Westpac New Zealand Limited.
We will update this list if there is a change. When a bank is added to the list, we will agree the length of any transition period before the bank is subject to the full D-SIB buffer ratio.