Open Bank Resolution policy now in the RBNZ's toolkit, any use would be 'assessed on a case-by-case basis'

Open Bank Resolution policy now in the RBNZ's toolkit, any use would be 'assessed on a case-by-case basis'

The Reserve Bank has confirmed its new bank failure tool, the Open Bank Resolution (OBR) policy, has gone live.

The prudential regulator has published its Open Bank Resolution Pre-positioning Requirements Policy on its website.

As of this week, all locally incorporated banks with retail deposits worth more than NZ$1 billion must be "pre -positioned" for OBR. That includes the country's newest, and smaller banks, such as the Co-operative Bank and Heartland Bank, and goes all the way up to New Zealand's biggest bank, ANZ.

Pre-positioning means having their IT, payments, resource and process functionality in place for the implementation of the OBR policy. This means if a bank was placed in statutory management, customer access channels are closed and a portion of customer funds frozen. The idea is access channels would then be reopened for business no later than 9am the next business day, which the Reserve Bank says will allow customers to access the available, or "good" portion, of their funds.

As the Reserve Bank puts it; "OBR ‘ pre -positioning’ is a mechanism for providing bank customers continued access to liquidity and banking service in a bank failure event."

All of cheque, savings and other transactional accounts, plus term deposits are included in pre-positioning requirements. The implementation of OBR would see first losses allocated to, and borne by, the bank's shareholders followed by subordinated debt holders.

It's worth remembering there's no obligation on the Government to use OBR in the event of a bank failure, with a taxpayer funded bailout such as the one of South Canterbury Finance that ultimately cost taxpayers about $805 million, liquidation or sale, other potential options that could be used.

Under OBR, the Governor General has the ultimate power to place a bank into statutory management on the advice of the Minister of Finance following a Reserve Bank recommendation. Once a bank is placed into statutory management, creditors’ claims against it are subject to a statutory moratorium.

"Any decision on applying OBR to a particular bank will be assessed on a case-by-case basis taking into account specific bank and wider financial system issues," the Reserve Bank says. See all our Open Bank Resolution Policy stories here.

The Reserve Bank says the complete OBR cycle can be broken down into the following phases;

(a) putting the bank in statutory management and temporarily closing the bank;

(b) preventing customer access to the bank and freezing all liabilities in full effective when the bank is put into statutory management;

(c) determining customer liability account balances at the effective time;

(d) applying the de minimis (dollar amount in relevant customer accounts that's protected from the allocation of losses and remains fully available to customers when the bank reopens the next business day following the appointment of a statutory manager), if required;

(e) applying the partial freeze, to customer liability accounts based on estimated losses;

(f) securing government support, via a guarantee for the unfrozen funds and other new liabilities entered into by the reopened bank;

(g) reopening the bank for core transaction business by 9am the next business day;

(h) freezing other liabilities until these are dealt with by the statutory manager;

(i) applying a partial freeze to all other unsecured liabilities that have not been pre-positioned;

(j) releasing additional frozen funds at a later time if directed by the statutory manager; and

(k) determining the future operations and potential restructuring of the failed bank.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I guess the reality of supply creates demand will ensure that a bank delivers itself into a state of insolvency demanding a recapitilisation financed by retail depositor's funds.
 
Why does the RBNZ refuse to advertise this new functionality as a means to inform the  population that; "OBR ‘ pre -positioning’ is a mechanism for providing bank customers continued access to liquidity and banking service in a bank failure event."
 
I believe I am not in receipt of a deposit taker notice formalising my terms of engagement given RBNZ's stated future intentions in respect of my unsecured bank lending, if an insolvency event is declared.