Banking changes in New Zealand are expected to be felt in Australia.

The Reserve Bank of New Zealand wants banks to help protect against collapse by having more “skin in the game”.

“We have proposed that banks come to the table with more of their own chips, and less of other people's, which will reduce the risk of them folding and reduce the risk of the New Zealand taxpayer ever having to step in to save them,” RBNZ deputy governor Geoff Bascand said in a speech in February.

JP Morgan senior economist Ben Jarman says the risks that NZ wants to avoid are not limited to the small island nation.

“There's risks that the New Zealand economy bears itself … but there's also this idea that New Zealand is quite strongly tethered to Australia, so any shock that Australia would endure probably would be transmitted to New Zealand,” he told the ABC.

The proposal would see the minimum ‘Tier 1’ capital requirement for major banks rise to 16 per cent — 14.5 per cent of that would need to be common equity Tier 1 (CET1).

APRA has a requirement of 10.5 per cent CET1 for Australian banks.

“As the New Zealand number goes up, even though it doesn't impact the group capital, it would reduce the number in Australia, so for APRA that's the real dilemma,” CLSA banking analyst Brian Johnson told the ABC.

Mr Johnson said banks more keep more of the profits they currently hand back to shareholders.

“If the New Zealand banks kept their dividend payout ratios at 30 per cent then you would get there organically. That's a real problem when the Australian banks are paying 70 per cent of their group earnings out,” he said.