Banking crises in New Zealand - an historical perspective

This article examines ‘systemic’ banking crises in New Zealand. While there are examples of individual institutional failures in New Zealand’s early colonial development for example, there are only two episodes that have involved a significant erosion of banking system capital – our definition of a systemic banking crisis. The first episode occurred in the late 1880s and early 1890s after a credit-fuelled rural land boom in the 1870s, while the second occurred in the late 1980s as a result of another credit-driven asset price boom and bust cycle following financial deregulation earlier in the decade. Both episodes can be understood within a framework that places at centre stage the propensity for economic agents to under-price risk, thereby creating balance sheet vulnerabilities for financial intermediaries, which can occasionally erupt into financial panic and crisis.