Academic journal article The Reserve Bank of New Zealand Bulletin

New Zealand's Financial System Resilient

Academic journal article The Reserve Bank of New Zealand Bulletin

New Zealand's Financial System Resilient

Article excerpt

7 November 2007

The Reserve Bank today released its Financial Stability Report, a twice-yearly report assessing the health of the New Zealand financial system.

Reserve Bank Governor Alan Bollard said the financial system is sound and has been reasonably resilient against a backdrop of worldwide market volatility.

"In recent months global financial stability has been severely tested, with turmoil in financial markets," said Dr Bollard. "Failure by borrowers in the US sub-prime mortgage market to meet their payments led to more widespread financial market volatility. As a result, the cost of risk has increased and liquidity has reduced."

Liquidity in the New Zealand dollar foreign exchange and interbank markets was tightly stretched in August, and, like many other central banks, the Reserve Bank stepped in to ensure the interbank market could trade normally.

"Recent events highlight the importance of liquidity for institutions and the financial system as a whole, and there are important lessons to be learned," Dr Bollard said. "New Zealand is heavily reliant on foreign capital markets, given its large external debt. These markets may not be as secure and liquid as previously thought. …

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