Academic journal article The Reserve Bank of New Zealand Bulletin

NZ Financial System Withstands Test, Says Reserve Bank

Academic journal article The Reserve Bank of New Zealand Bulletin

NZ Financial System Withstands Test, Says Reserve Bank

Article excerpt

7 May 2008

New Zealand's financial system has so far withstood a severe test of global financial markets, but it would be prudent to ensure there is adequate liquidity in case disruptions intensify, Reserve Bank Governor Alan Bollard said today, when releasing the Bank's May 2008 Financial Stability Report.

Dr Bollard said the system has come through a period when many overseas financial institutions, including some of the world's largest banks, have incurred substantial losses related to the US sub-prime mortgage market.

"The IMF has described recent events as the largest financial shock since the Great Depression. Adjustment could be protracted, and further volatility in world equity markets, exchange rates and debt markets looks likely," he said. The New Zealand economy looks set for a period of slower growth, already evident in the housing sector.

The New Zealand financial system has very little exposure to offshore credit risk or the structured debt products that have damaged the balance sheets of many overseas banks. "Bank balance sheets remain solid, with appropriate capital buffers," he commented.

However, Dr Bollard said New Zealand banks have been affected by the global tightening in liquidity and availability of funds. "Banks in both New Zealand and Australia source a significant amount of their funding from global financial markets. …

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