The Bank of New Zealand (BNZ) has been ordered to add $250 million to its capital reserves after miscalculating its risk.
As a result, the Reserve Bank (RBNZ) required the BNZ to increase the floor of its operational risk capital model temporarily to $600m, from $350m.
An internal review by the Australian-owned bank had so far found three errors in its own assessment of its risk.
"Given the likelihood that further compliance issues will be discovered during the [BNZ] review and remediation, the Reserve Bank regards a precautionary capital adjustment as prudent," said RBNZ Deputy Governor Geoff Bascand.
"The additional capital overlay will be removed when remediation is complete.
"It is the Reserve Bank's expectation that the current review will identify all outstanding compliance issues and potential breaches."
BNZ chief risk officer Sam Perkins said it was disappointed it had not met regulatory standards.
"The temporary and precautionary nature of the increased minimum capital requirements from RBNZ acknowledges the significant amount of work underway at BNZ to strengthen our processes, and that we have self-reported issues when we have found them," Mr Perkins said.
"We are making good progress on addressing this issue and expect to have it completed next year."
The BNZ was the third local bank to be ticked off by the regulator for underreporting risk.