Academic journal article The Reserve Bank of New Zealand Bulletin

Banks Need to Think about Broader Economic Imbalances

Academic journal article The Reserve Bank of New Zealand Bulletin

Banks Need to Think about Broader Economic Imbalances

Article excerpt

9 May 2007

The Reserve Bank today released its Financial Stability Report, a twice-yearly report that assesses the health of the New Zealand financial system. The report covers developments in financial institutions, foreign exchange and debt markets, and payments systems. It also comments on recent financial policy developments.

The Reserve Bank Governor, Dr Alan Bollard, commented that New Zealand's financial system has continued to be stable. Financial markets are performing well and the banks continue to be well capitalised and strongly profitable.

"However, there are significant economic imbalances which present risks for the financial system. The ongoing housing boom and large savings deficit in the household sector are being funded by international borrowing via the domestic banking system."

"While global markets are currently very liquid, we should be mindful that this will not always be the case. And the longer imbalances run, the more likely we are to see a sharp correction".

"The banks are highly competitive, but while competition is to be encouraged, the low level of lending margins has contributed to ever increasing levels of household debt and upward pressure on house prices," said Dr Bollard. …

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