Bollard gives exit interview after 10 years at RBNZ
(2 October 2012 – New Zealand) After 10 years as Reserve Bank of New Zealand (RBNZ) governor, Alan Bollard spoke to Bernard Hodgetts for the Reserve Bank Bulletin for an exit interview as he handed the reigns over to incoming governor Graeme Wheeler.
In the September bulletin, Bollard revealed his highs and lows in the job and his thoughts on the high returns earned by the foreign-owned banks. Here are a few exerpts from the interview:
What Bollard thinks of banks and their earnings:
'The banks have been efficient from a productive point of view and from a dynamic point of view, I think they have been quite innovative. From an allocative efficiency point of view, it is worth asking why the banks can continue to earn returns through the cycle which are large by most standards. Banks are learning to live with lower returns although they are still higher than in most other banking systems.'
His attitude to banks' foreign ownership:
'The four largest banks in New Zealand are Australian owned but ironically are more important to our economy than they are to the Australian economy, and that highlights a couple of issues. First, what about the non banks? They now perform a disappointingly small role in the New Zealand economy, one that needs to grow and to improve in quality and professionalism. That will take a long time.'
And he said: 'Second, we have been prepared to host foreign-owned banks and that's been a wise decision for New Zealand. I think we are in a much better position now than ten years ago in that there is now quite a track record on how to regulate from a host country point of view. We are seeing quite a number of other good economies with foreign owned banking systems. I'm thinking of the Scandinavians, Baltics, some Eastern Europeans, some Latins. So we are no longer alone.'
And regulating them:
'In the banking supervision space, I've learnt that banks can be very dangerous institutions and can be very complicated and it can be very hard to model the risks. Tail end risks are something you can talk about, but are very hard to deal with. Contagion can be much more virulent than I thought, both between institutions and between countries. The whole area of strengthening banks to reduce the probability of default and finding ways of resolving bank distresses in a way that can reduce losses and panic is a really complicated area, but we have learnt a lot. Still, there will be more crises.'
For more, go to www.rbnz.govt.nz/research/bulletin/
What Bollard thinks of banks and their earnings:
'The banks have been efficient from a productive point of view and from a dynamic point of view, I think they have been quite innovative. From an allocative efficiency point of view, it is worth asking why the banks can continue to earn returns through the cycle which are large by most standards. Banks are learning to live with lower returns although they are still higher than in most other banking systems.'
His attitude to banks' foreign ownership:
'The four largest banks in New Zealand are Australian owned but ironically are more important to our economy than they are to the Australian economy, and that highlights a couple of issues. First, what about the non banks? They now perform a disappointingly small role in the New Zealand economy, one that needs to grow and to improve in quality and professionalism. That will take a long time.'
And he said: 'Second, we have been prepared to host foreign-owned banks and that's been a wise decision for New Zealand. I think we are in a much better position now than ten years ago in that there is now quite a track record on how to regulate from a host country point of view. We are seeing quite a number of other good economies with foreign owned banking systems. I'm thinking of the Scandinavians, Baltics, some Eastern Europeans, some Latins. So we are no longer alone.'
And regulating them:
'In the banking supervision space, I've learnt that banks can be very dangerous institutions and can be very complicated and it can be very hard to model the risks. Tail end risks are something you can talk about, but are very hard to deal with. Contagion can be much more virulent than I thought, both between institutions and between countries. The whole area of strengthening banks to reduce the probability of default and finding ways of resolving bank distresses in a way that can reduce losses and panic is a really complicated area, but we have learnt a lot. Still, there will be more crises.'
For more, go to www.rbnz.govt.nz/research/bulletin/
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