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Foreign-owned banks: Implications for New Zealand's financial stability

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Abstract

Of the five major banks in New Zealand three are owned by Australian parent companies, one operates as the New Zealand branch of an Australian bank, and one has a British parent. Thus, bank ownership in New Zealand is foreign, but not very diversified. The literature on foreign bank ownership predominately focuses on developing countries and highlights the fact that large, diversified banks can enhance stability. New Zealand differs from the developing countries previously studied, as it is a developed country with foreign, but not necessarily diversified ownership. This paper explores the composition of bank ownership in New Zealand and the implications for financial stability. The paper begins with an analysis of the diversification of parent companies' assets and discusses the implications of institutional arrangements between parents and their subsidiaries or financial stability. Next, the degree of interdependence between Australia and New Zealand is analysed. Finally, the paper presents stylised implications of the structure of the market on bank behaviour during a time of crisis. The interaction of these three factors dictates the implications of foreign bank ownership on financial stability in New Zealand.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2002/05.

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Length: 32p
Date of creation: Apr 2002
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Handle: RePEc:nzb:nzbdps:2002/05

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  1. Joe Peek & Eric S. Rosengren, 2000. "Implications of the globalization of the banking sector: the Latin American experience," New England Economic Review, Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, issue Sep, pages 45-62.
  2. Joe Peek & Eric S. Rosengren, 1996. "The International Transmission of Financial Shocks: The Case of Japan," Boston College Working Papers in Economics, Boston College Department of Economics 357, Boston College Department of Economics.
  3. Glick, Reuven & Rose, Andrew K., 1999. "Contagion and trade: Why are currency crises regional?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(4), pages 603-617, August.
  4. Linda Goldberg & B. Gerard Dages & Daniel Kinney, 2000. "Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina," NBER Working Papers 7714, National Bureau of Economic Research, Inc.
  5. Selover, David D & Round, David K, 1995. "Business Cycle Transmission between Australia and New Zealand: A Vector Autoregression Approach," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 34(65), pages 218-43, December.
  6. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2000. "Inside the crisis : an empirical analysis of banking systems in distress," Policy Research Working Paper Series, The World Bank 2431, The World Bank.
  7. Piti Disyatat, 2001. "Currency Crises and the Real Economy," IMF Working Papers, International Monetary Fund 01/49, International Monetary Fund.
  8. Miller, V., 1998. "Domestic bank runs and speculative attacks on foreign currencies," Journal of International Money and Finance, Elsevier, Elsevier, vol. 17(2), pages 331-338, April.
  9. Dr Don Brash, 2002. "An indebted people," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 65, March.
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Cited by:
  1. Susan Schroeder, 2009. "Defining and detecting financial fragility: New Zealand's experience," International Journal of Social Economics, Emerald Group Publishing, Emerald Group Publishing, vol. 36(3), pages 287-307, January.
  2. Tim Ng, 2007. "La réglementation des activités bancaires transfrontalières : la politique de la Nouvelle-Zélande en matière d'externalisation dans les banques," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 90(4), pages 211-220.
  3. George Kaufman, 2004. "Bank regulation and foreign-owned banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 67, june.
  4. Tim Ng, 2007. "The Reserve Bank’s policy on outsourcing by banks," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 70, June.
  5. Willy Chetwin, 2006. "The Reserve Bank's local-incorporation policy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 69, pages 10p, December.
  6. Leslie Hull, 2002. "Corporate behaviour and the balance of payments," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, Reserve Bank of New Zealand, vol. 65, December.

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