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Date Submitted: 09/27/2010 12:06 AM
New Zealand and the Financial Crisis of 2008
David Tripe Centre for Banking Studies Massey University Private Bag 11‐222 Palmerston North June 2009 Abstract: The financial crisis of 2008 has impacted on different countries around the world in different ways, and the impacts that it has had on New Zealand are a reflection of a number of peculiar institutional features of the New Zealand banking system and the New Zealand economy. This paper seeks to identify these special features for New Zealand, by looking at the ownership of New Zealand’s banks, the balance of payments current account and the international investment position, bank funding and the economic and financial structure of the New Zealand economy. We need a proper understanding of these factors before we can make sensible assessments of how New Zealand might work its way out of the crisis. Keywords: Financial crisis, New Zealand, banks and banking
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Introduction
New Zealand may be a small isolated country, but that does not mean that the study of its economy and banking system cannot be interesting. Not only does New Zealand have an overwhelmingly foreign‐owned banking system, but it has also run current account deficits in the balance of payments for many years, so that it has built up a strongly negative international investment position (93.3% of GDP at December 2008). When one also has regard to a strong run‐up in house prices through until mid 2008, New Zealand can appear very similar to a number of countries which have experienced severe economic problems in the last part of 2008, and through into 2009. A further characteristic of the New Zealand financial system is that it is strongly bank‐dominated, with relatively little financial intermediation undertaken through other channels. So far at least, however, New Zealand’s economic problems seem to have been relatively mild, ...