Reserve Bank of New Zealand Bulletin articles

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December 2009 (Vol 72, no 4)

Download the complete issue of the December 2009 Bulletin (PDF 777KB)

Articles

The Reserve Bank’s new liquidity policy for banks (PDF 116KB)
By Kevin Hoskin, Ian Nield and Jeremy Richardson

A strong liquidity profile is important for all companies. This is particularly true for banks, given the maturity transformation role that is inherent to much of their business. The maintenance of a sound and efficient financial system requires banks to hold a liquidity profile that is robust to funding shocks. The New Zealand banking system is very concentrated, and unusually reliant on short-term offshore funding by comparison with other developed countries. This makes its institutions, and the system as a whole, particularly vulnerable to liquidity shocks. The Reserve Bank has been working to develop new prudential requirements designed to strengthen the liquidity of the New Zealand financial system. In this article, we explore the nature of liquidity risks inherent within the system and explain in detail the new requirements for registered banks. In doing so, we note that the new requirements come at a time when global regulators are looking to strengthen liquidity requirements in light of the recent financial crisis. The Reserve Bank considers that its new framework provides a solid foundation for enhancing liquidity in the New Zealand financial system, which can be further developed as necessary in the coming years.

Banking crises in New Zealand – an historical perspective (PDF 314KB)
By Chris Hunt

This article examines ‘systemic’ banking crises in New Zealand. While there are examples of individual institutional failures in New Zealand’s early colonial development for example, there are only two episodes that have involved a significant erosion of banking system capital – our definition of a systemic banking crisis. The first episode occurred in the late 1880s and early 1890s after a credit-fuelled rural land boom in the 1870s, while the second occurred in the late 1980s as a result of another credit-driven asset price boom and bust cycle following financial deregulation earlier in the decade. Both episodes can be understood within a framework that places at centre stage the propensity for economic agents to under-price risk, thereby creating balance sheet vulnerabilities for financial intermediaries, which can occasionally erupt into financial panic and crisis.

Assessing recent external forecasts (PDF 219KB)
By Filipe Labbé and Hamish Pepper

This article compares the performance between external forecasts and Reserve Bank of New Zealand published projections for real GDP growth, CPI inflation, the 90-day interest rate and the trade weighed index (TWI) to examine the accuracy of different forecasts. Since 2003, the Reserve Bank has collected and analysed forecasts from as many as 13 external forecasting agencies as part of the process of monetary policy formulation. The forecasts help to identify risks around the Reserve Bank forecasts. Reserve Bank forecasts are more accurate than most, significantly outperforming the external average for one-year ahead GDP growth, two-year ahead CPI inflation and two-year ahead TWI forecasts. However, our analysis shows that a number of external forecasting agencies perform reasonably well, suggesting that these forecasts are likely to be useful when formulating monetary policy.

The evolution of New Zealand’s trade flows (PDF 126KB)
By Victoria Zhang

New Zealand’s trading patterns have changed considerably in recent years. Our trade is increasingly oriented towards the Asia-Pacific region, both in terms of our exports and imports. This article examines changes in New Zealand’s trading patterns and provides details on how the Reserve Bank measures activity and inflation in our trading partner economies. To reflect recent changes in New Zealand’s trading patterns, the Reserve Bank has expanded the basket of countries that we focus on when examining international conditions. The Reserve Bank is conscious of the ongoing changes and uncertainties around the activity outlook in our trading partner economies. We will continue monitoring changes in trade patterns and make adjustments as required.

For the record (PDF 85KB)
Recent discussion papers, news releases and publications from the Reserve Bank of New Zealand

The views expressed are those of individual authors and do not necessarily reflect official positions of the Reserve Bank of New Zealand. Articles published in this Bulletin may not be wholly or substantially reproduced without the permission of the Reserve Bank of New Zealand. Data, brief extracts from articles, and other material appearing in the Bulletin, may be used without restriction provided due acknowledgement is made of the source.