Reserve Bank of New Zealand Bulletin articles – September 2005

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September 2005 (Vol 68, no 3)

Download the complete issue of the September 2005 Bulletin (PDF 505KB)

Articles

Editor’s Note (PDF 38KB)

Basel II: A new capital framework (PDF 101KB)

By Andrew Yeh, James Twaddle and Mike Firth

This article provides an introduction to the new Basel II Capital Framework (Basel II) and the Reserve Bank’s approach to its implementation in New Zealand. Bank capital plays an important role in absorbing unexpected losses. Regulators have an interest in the amount of capital held by banks and set some minimum capital adequacy requirements for banks. Basel II replaces the current regulatory requirements and provides a new framework for thinking about capital’s role in banking and how capital requirements should be calculated. The main objectives of Basel II are to increase the sensitivity to risk of regulatory capital requirements, and to provide incentives for banks to enhance their risk-management systems and processes. The Reserve Bank is responsible for setting regulatory capital requirements for banks incorporated in New Zealand. For locally-incorporated banks that also have operations overseas, the Reserve Bank liaises closely with the relevant foreign supervisors to ensure a smooth and efficient implementation and operation of the rules in New Zealand.

Recent trends in foreign exchange turnover (PDF 209KB)

By Nick Smyth

We examine recent trends in the global foreign exchange market using the 2004 BIS triennial foreign exchange turnover survey. The survey shows trading in the New Zealand dollar has increased significantly over the past three years. This reflects increased offshore capital investment into New Zealand and the associated higher global profile of the New Zealand dollar. Foreign exchange trading in New Zealand has also increased, largely in line with global trends. The survey gives new insights into the global nature of the New Zealand dollar market.

An update on Eurokiwi and Uridashi bonds (PDF 170KB)

By David Drage, Anella Munro and Cath Sleeman

This article provides an update on the market for offshore issues of New Zealand dollar denominated bonds, commonly referred to as New Zealand dollar Eurobonds, Eurokiwis, New Zealand dollar Uridashi, and global issues. Net issuance of these bonds has surged in the past two years, driven by strong demand for credit in New Zealand (high domestic interest rates) and by supply conditions internationally (low yields in Europe and Japan). Offshore issuance of New Zealand dollar bonds provides an important channel for New Zealand firms and households to access foreign capital and reduces, at the margin, our cost of capital. These bonds provide a useful source of hedging for New Zealand’s foreign currency external debt, reducing the potential for undesirable valuation effects during times of stress. Ex-post returns on Eurokiwi bonds that had matured by the end of 2004 were on average the same, in euros, as German government bonds, but more variable, reflecting exchange rate risk. In theory, the increased supply of foreign capital from offshore New Zealand dollar bonds puts upward pressure on the New Zealand dollar at issue and downward pressure at maturity. However, historical data suggests that any exchange rate impact around the time of maturity tends to be small, consistent with the idea expected effects are priced-in well in advance by forward-looking markets.

Funding agreements for the Reserve Bank (PDF 57KB)

By Mike Wolyncewicz

This article discusses the policy rationale underpinning Funding Agreements which provide a basis for financing the Reserve Bank’s operating expenditure for a five-year period. The article explains the various checks and balances in the funding framework. It then goes on to describe the process by which a Funding Agreement is developed, and provides a brief overview of the profile of the Bank’s operating expenditure since 1990.

Speeches

New Zealand Payment System (PDF 54KB)

An address by Dr Alan Bollard, Governor, Reserve Bank of New Zealand, to the Institute of Finance Professionals New Zealand on 11 August 2005. Alternatively, link to the html version of this speech by Alan Bollard.

The views expressed are those of individual authors and do not necessarily reflect official positions of the Reserve Bank of New Zealand. Articles published in this Bulletin may not be wholly or substantially reproduced without the permission of the Reserve Bank of New Zealand. Data, brief extracts from articles, and other material appearing in the Bulletin, may be used without restriction provided due acknowledgement is made of the source.