Table of Contents

Research Handbook on International Banking and Governance

Research Handbook on International Banking and Governance

Elgar original reference

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.

Chapter 30: Bank Governance: The Case of New Zealand

Don Brash

Subjects: economics and finance, money and banking

Extract

Don Brash 30.1 THE 1980S: LIBERALIZATION AND CRISIS Until the mid-1980s, New Zealand had just four banks: one fully owned by the government, one owned by Lloyds Bank in the UK, and two owned by large Australian banks. In the mid-1980s, as the New Zealand economy experienced a far-reaching liberalization across virtually every area of policy, non-bank financial institutions were allowed to convert to full banking status, and foreign banks were allowed to establish branches or subsidiaries. By the time I became Governor of the Reserve Bank of New Zealand in September 1988, there were a total of 15 registered banks, including the four ‘original’ banks. The Reserve Bank had responsibility for issuing licences to the new banks – the original four were deemed banks by legislation, and so did not need to get a licence – and for supervising all of them. In keeping with the policy environment in New Zealand at that time, supervision was light-handed, and regulation even more so. We did not dream of on-site inspection and were relaxed about whether foreign-owned banks operated as subsidiaries incorporated in New Zealand or as branches of the foreign parent. When I first arrived at the Bank, there was no limit on risk concentration. I was particularly surprised at the absence of any limit on risk concentration, having just come from a commercial banking environment, and soon after my arrival we instituted a limit of 35 per cent of bank equity for any single counterparty. But then in the late 1980s...

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