mr brash comments on the economic reforms of the last 15 years in new zealand comments on accepting the nzier / qantas economics award by dr donald t brash, governor of the reserve bank of new zealand, held in auckland on 18 august 1999. * * * mr chairman, ladies and gentlemen, i was greatly flattered to be nominated for this nzier / qantas economics award, and feel deeply honoured to have been selected to receive it. i regard the earlier recipients of the award as among the giants of the economics profession, and i have been privileged to work with all of them in one way or another. i am also very much aware that, while my name is on the award, i owe that fact in large measure to the efforts of a great many other people, including my colleagues on the monetary and economic council, on the committee of inquiry into inflation accounting, on the new zealand planning council, on the economic monitoring group, and on the various taxation advisory committees i was privileged to chair in the eighties ; to the efforts of my colleagues and staff in the reserve bank ; and of course to my teachers and family over a great many years. thank you. i was told i might speak briefly on accepting the award. what to talk about? it hardly seems the appropriate moment to speak about the official cash rate, so i thought i might be allowed a little licence to add my contribution to the debate currently raging on all sides about the success or otherwise of the economic reforms of the last 15 years. but before i do that i want to say that i sometimes wonder whether we new zealanders are not congenitally prone to wild swings in mood : we are either riding high in self esteem, confident that we can take on the world and win, as we were in the mid - eighties and mid - nineties, or we are utterly gloomy, convinced that a cyclical downturn in net immigration represents the end of civilisation as we know it, with our only hope being to plead with australia to take us on as a distant tasmania. as doug myers mentioned in a speech a week ago, “ we have developed a cottage industry of pessimism ”. 1 i do not propose to assess why we have this tendency to wild swings in mood, nor even to offer a comprehensive assessment of the economic reforms of the last 15 years. that can not be done in 15 minutes. but let me make just a few observations. first, i believe that there are several

in being physically present in local markets as it lowers the costs of monitoring. yet we also know there is a risk that local banks can become engaged in so - called “ connected lending ”, which tends to be inefficient. 4 research suggests that in this context retail banking integration – in the form of cross - border m & a – can improve allocative efficiency by increasing the distance between the main shareholders and management of a bank and the vested interests in the country where the bank operates. 5 another dimension is the connection between national banks and national interests. there may be allocative inefficiencies that arise from trying to build up or defend “ national champions ” in the context of an integrated eu financial market. 6 one example of this phenomenon during the crisis was the decision of several national authorities to merge failing banks with other domestic banks rather than resolve them, which probably increased concentration. indeed, in the us the fdic has resolved around 500 banks since 2008 ; the equivalent figure for the euro area is around 50. this underlines that reaping the allocative benefits of a single market in capital is linked not only to having a more integrated banking system, but also having more arms ’ length governance of it – that is, having european rather than national supervision and resolution. european banks should finance the european economy. this is the essence of the european project and it benefits us all. renationalising savings may provide short term protection but in the longer term it would be harmful to growth and jobs. diversification turning to diversification, we see a similarly incomplete picture as for allocation. most studies on risk - sharing within the euro area suggest that financial markets in the euro area do not provide much cross - border insurance. indeed, a recent study by bruegel found that, during the crisis, credit and capital markets absorbed only about 10 % of the shock to gdp in net terms. 7 by contrast, in the us it has been estimated that capital and credit markets smooth around two - thirds of a given shock. 8 what might be the reason for the lack of risk diversification in the euro area? in my view, on top of the lack of cross - border bank lending, the problem stems from the underdevelopment ryan, r., o ’ toole, c. and mccann, f. ( 2014 ), “ does bank market power affect sme financing constraints ”, journal of banking and finance, january. according to cunat