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Public Standards and Private Monitoring: New Zealand's New Banking Supervision Regime
... This analysis suggests that there would be considerable scope for utilising market discipline to limit the moral hazard and principal-agent problems without significantly compromising the objective of systemic stability. The recent reforms to banking su pervision in New Zealand involve a very significant shift towards a reliance on private sector market-based discipline to supervise bank risk taking (see Grimes, 1996). ...
... One possible cost of regulation is created by hindsight bias, the phenomenon that an event that has occurred seems in hindsight to have been more predictable than it really was (Fischhoff 1982). 35 See Reserve Bank Act 1989, Part 5, and Grimes (1996). ...
Sapere Research Group and the New Zealand Law Foundation.
Neoclassical economics, which assumes rationality and self-interest, has helped analyse many regulations. But a growing body of evidence about judgements, decisions, and preferences casts doubt on the applicability of these assumptions. Drawing on this evidence, behavioural economics can now supplement neoclassical economics in regulatory analysis.
... As a result, the subordinated debt holder has an incentive to monitor the bank closely and would charge the bank (through the rate on its subordinated debt) for this activity and for the resulting risk. This option was outlined in Grimes (1996Grimes ( , 1999 and has been studied by Board of Governors of the Federal Reserve System (1999) and Shadow Financial Regulatory Committee (2000). Calomiris (2008) indicates that its potential adoption in the United States was killed in 1999 by bank lobbying, but he argues that this mechanism merits reconsideration. ...
... New Zealand struggled to reconcile the principles of Knight's group with the more prescriptive approach emanating from Basle. Further refinements followed, and from 1996 prudential supervision was based on the public disclosure by banks of relevant prudential information, with directors held legally accountable for its accuracy (Grimes, 1998(Grimes, , 1999a(Grimes, , 1999bSingleton et al., 2006, pp. 226-231). ...
The banking industries of New Zealand and South Africa were among the most tightly regulated in the western world in the early 1980s. Restrictions on foreign banks were particularly acute, especially in South Africa. From a position of considerable isolation, first New Zealand then South Africa implemented programmes of financial liberalisation. We show that the outcome of liberalisation was different in these two countries. South African banks were able to establish a strong presence in external markets, but the New Zealand banking system was mopped up by its Australian neighbour. These divergent outcomes reflect the origins, geographical position, and unequal capabilities of the New Zealand and South African banking industries.
This article reviews the development in the New Zealand financial sector and capital market over the last decade.
APEC countries have adopted a set of “competition principles” designed to apply to all industries, including the financial services industry. However, a successful financial market must be sound as well as competitive. We examine the tension between the principles of soundness and competitiveness within the financial services sector to ascertain whether APEC competition principles can be applied to the financial sector. We conclude, with reference both to theory and to empirical example, that the principles can be applied but certain regulatory practices particularly those barring new entry and the state direction of bank’s business activities will have to be amended.
Report and Financial Statements
- Reserve Bank
- Australia
Reserve Bank of Australia (1995), Report and Financial Statements, Sydney.
Review o f Banking Super-vision: Reserve Bank' s Policy Conclusions
------(1994), Review o f Banking Super-vision: Reserve Bank' s Policy Conclusions, Wellington.
------(1995), 'Review of Banking Supervision: Reserve Bank's Policy Conclusions', Reserve Bank
Bulletin 58(2): 73-8.