RBNZ's first Financial Stability Report

Wed, 20 Oct 2004

Reserve Bank of New Zealand

News Release

20 October 2004
RBNZ's first Financial Stability Report
The Reserve Bank today issued the first of a regular series of Financial Stability Reports which will assess the current state of New Zealand's financial system.

Topics covered in the report include:
* a review of the current economic and financial environment;
* an assessment of New Zealand's financial institutions;
* recent developments in banking regulation and supervision;
* recent stress testing of the banking system; and
* an overview of the foreign exchange and government bond markets.

Reserve Bank Governor Alan Bollard commented "The Reserve Bank sees the New Zealand financial system as being stable and functioning effectively, and the banking system as being financially robust and resilient. However, there are always risks. Experience shows that financial instability often has its origins in periods of long economic expansion, such as New Zealand is enjoying at the moment.

"Among the issues currently receiving attention is the possible implications of increased debt that has been taken on by households, and the relatively rapid growth in lending by some non-bank institutions. A significant slowing of the economy, and of the property market in particular, or higher than expected interest rates, could result in some strains for heavily indebted households. Difficulties could also be faced by non-bank financial institutions that have taken on greater risk by funding speculative property developments or unproven business.

"We are also cognisant of the increased concentration of the New Zealand banking system, given the amalgamation of the ANZ and National Bank. As the report describes, the four systemically important banks in New Zealand now account for 85 per cent of the banking system's total assets. Their systemic importance underscores the importance of policies that provide the Reserve Bank with the capacity to maintain their operations, should they come under serious financial stress.

"This new six monthly publication reflects the increased emphasis that the Reserve Bank is placing on financial stability issues. We are seeking to ensure that New Zealanders can have the benefits of a financial system that is both sound and efficient."

You can view a series of additional highlight sheets (PDF 156KB) at http://www.rbnz.govt.nz/banking/fsr_highlights.pdf or read the full Financial Stability Report (PDF 885KB) at http://www.rbnz.govt.nz/banking/fsr_oct2004.pdf

ENDS

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