The Government are looking to make banks more accountable and to strengthen safety around deposits.
Finance Minister Grant Robertson said the OECD and International Monetary Fund indicated New Zealand's banking system "might be more vulnerable in a crisis because we don’t have a deposit protection regime".
Cabinet signed off an "in-principle decision" to create a deposit protection regime, proposing a limit of between $30,000 and $50,000.
"This would cover 90 per cent of individual bank deposits in New Zealand, which is similar to international schemes. It follows consultation with the sector."
"A deposit protection regime will increase public confidence in the banks. New Zealand has been an outliers for many years in that we don’t have a formal deposit protection regime to support Kiwis if a bank were to fall over," he said.
"A deposit protection scheme will help protect customers like a young couple saving a deposit for a house, people saving for their retirement, or the small business operator who keeps money aside for a rainy day."
The Government also looked to ensure regulators could hold banks and executives to account, with the next consultation of the Review of the Reserve Bank Act investigating whether the Reserve Bank's "supervisory regime is sufficiently strong".
"It will also review the enforcement tools the Reserve Bank has, including whether penalties are tough enough to discourage certain behaviour."
The Government is considering overseas frameworks, which allow for an increase in the accountability of senior executives for banks and licensed deposit-takers.
Today, AAP reported ANZ New Zealand pledged to co-operate with requests from the country's central bank to provide two reports, assuring it is operating in a prudent manner.
The Reserve Bank of New Zealand directive follows a decision last month to revoke ANZ's local license to calculate its own operational risk capital and raising minimum capital requirement.