Edited by James R. Barth, Chen Lin and Clas Wihlborg
Chapter 30: Bank Governance: The Case of New Zealand
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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