National Australia Bank (NAB) has confirmed that it is looking into the possibility of increasing the amount of capital that it currently has in the Bank of New Zealand (BNZ), its subsidiary, up to A$4.7bn.

This move came about after the Reserve Bank of New Zealand (RBNZ) said that there is a need for all banks to increase their available capital so that they are better able to weather any financial storms that may be on the horizon.

As a result, NAB may need to up the level of investment that it currently has in its New Zealand subsidiary. RBNZ proposals suggest almost doubling the available capital for all major lenders, meaning that a Tier 1 capital increase is now under discussion. It would cost NAB between A$3.8bn and A$4.7bin, which could disrupt its current forecasts.

RBNZ said that there is sufficient reason to believe that its banks are not able to deal with financial shocks, and amid persistent rumors from analysts and world-leading economists that crashes and recessions may not be too far away, there is now a pressing need to put controls in place.

By increasing the amount of available capital, any shocks that do happen should have less of an impact in theory. The assets that could face damage will drop in percentage, particularly if banks ensure some diversity in their portfolios.

All of Australia’s Big Four major lenders have subsidiaries in New Zealand, meaning that these banks will all need to look into how RBNZ’s proposals could affect their margins. The total increased investment in New Zealand banks should be around A$12.1bn.

Although this transition will take place over a five-year period, there is a need to get the ball rolling quickly, as many potential obstacles for economic growth could occur in the next decade. This particularly concerns housing and energy generation, as neither market looks stable at the moment.

The Australia and New Zealand Bank (ANZ) said that it has also flagged up a necessary capital increase to its NZ assets, which it expects will cost around A$5.5-7.5bn. Meanwhile, both Westpac and Commonwealth Bank of Australia (CBA) have acknowledged RBNZ’s statements and are likely to respond in due course by notifying their shareholders of how they plan to react.

Analysts have received this medium-term strategy positively, with Goldman Sachs saying in a note that ‘the revised capital framework does appear manageable.’

There is cause to suggest that both Australia and New Zealand have been lagging behind their international counterparts in this regard. The Australian Prudential Regulatory Authority (APRA) cited a need to introduce higher capital requirements in both nations.

Goldman Sachs said that it does not think that there will need to be an increase in capital allocation at first and that the banks will only need to repatriate funds from elsewhere to help meet expectations. It did note, however, that ‘this final point remains highly uncertain,’ referring to a lack of confirmation from all banks about their next steps and from where they could allocate capital.