Former BNZ chairman Kerry McDonald is leading calls for Key to step down after ANZ New Zealand was punished by the Reserve Bank over capital modelling failings.
Last month, the Reserve Bank revoked ANZ's license to model its own risk capital after the bank was found to have used an incorrect model since 2014. ANZ says it discovered the problem in April. Former prime minister Key joined the ANZ board in early 2018.
As part of its punishment, ANZ will need to increase risk capital by at least $277 million. But McDonald believes the punishment does not go far enough.
McDonald has written to the Reserve Bank Governor Adrian Orr calling for a tougher penalty against ANZ. He said he was "amazed" by the "slap on the wrist" given by the central bank.
"In my view ... this failure indicates that the board was/is not competent and also raises serious questions about the bank's management and reinforces my concern with the competence of the boards of the banks generally," McDonald said.
McDonald called for a sweeping overhaul of the ANZ board.
"In my opinion, reflecting the false attestations alone, the chairman and chief executive of the bank should resign or be removed from role, as well as heads of risk, legal and compliance and at least two other directors should be 'retired' as part of a board 'refresh' to improve the overall competence of the board," he added.
The pressure comes as ANZ CEO David Hisco took extended sick leave from the bank last week. Antonia Watson, retail and business banking head, has become acting CEO in Hisco's absence.
Responding to McDonald's comments, an ANZ spokesman said the bank "does not believe there is a systemic failure in its controls and attestation processes".
The spokesman added: "While isolated, and with no impact on customers or the operation of the bank, ANZ New Zealand is disappointed this error occurred. Mr McDonald is welcome to discuss the issue with us at any time."