Westpac has been disciplined by the Reserve Bank for breaking the rules meant to keep banks safe against financial crisis.
Photo: RNZ / Cole Eastham-Farrelly
As one of the country's biggest banks Westpac is allowed to work out how much money to hold as capital to cover the risks, such as a repeat of the global financial crisis.
The Reserve Bank said many of the methods used by Westpac to assess the risks were not approved, nor did the bank have proper structures to manage the process.
Deputy Governor Geoff Bascand said it was "very disappointing".
"Operating as an internal models bank is a privilege that requires high standards and comes with considerable responsibilities. Westpac has not met our expectations in this regard," he said.
He said the breaches were not believed to be deliberate and Westpac always had enough capital, but it had been ordered to hold more money as capital and had 18 months to correct the breaches.
"We believe the regulatory action is appropriate given the seriousness of Westpac's non-compliance and the need to protect the integrity of the capital regime," Mr Bascand said.
Westpac said it was disappointed to have not met the standards and was taking steps to comply.