New Zealand Bank Vulnerabilities in International Perspective

IMF Working Papers, October 1, 2009

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The global financial crisis is creating stress on banking systems across the world through funding and asset quality shocks.
The paper combines different stress scenarios, as well as cross-country analysis, to assess New Zealand bank vulnerabilities to the global crisis and the domestic recession.
It finds that a sharp worsening of asset quality would be required to reduce bank capital below the regulatory minimum.
On the funding side, a disruption to banks' offshore funding may put pressure on the exchange rate, but would not trigger a systemic liquidity problem.

Combines different stress scenarios.
Employs cross-country analysis to assess vulnerabilities.
Focuses on both asset quality shocks and funding shocks in the context of the global financial crisis and a domestic recession.

Asset quality: A large deterioration in asset quality is necessary to bring bank capital below the regulatory minimum.
Funding: Disruption to offshore funding could exert pressure on the New Zealand dollar exchange rate.
Liquidity: The assessed funding disruption would not, according to the analysis, trigger a systemic liquidity problem.

Subject: Banking, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Housing prices, Loans, Mortgages, Prices, Stress testing
Keywords: asset quality, bank, bank asset quality, bank assets, bank capital, bank funding, Capital adequacy requirements, disclosure statement, financing, Global, Housing prices, Loans, mortgage, Mortgages, New Zealand, New Zealand bank, New Zealand dollar, Stress testing, stress tests, WP

Source: IMF Working Paper No. 2009/224 (Rodrigo Cubero and R. Brooks), October 1, 2009.

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