and losses which the government - owned banks experienced. there have been various reasons given for this difference, but the most plausible is that the large foreign - owned banks were under the watchful eye of experienced parent banks, and were therefore much less able to stray into some of the riskier propositions which tempted the government - owned institutions, especially in the years immediately after the banking sector was liberalised in the mid - eighties. ( the newly - arrived foreign - owned banks, however, often did succumb to the temptation of lending on risky propositions, perhaps because, being quite small both in absolute terms and in relation to their overseas parents, they were subject to much less intensive parental scrutiny. ) more recently, new zealand has been running a very large balance of payments deficit, probably amounting to more than 7 per cent of gdp at the present time. as in some asian countries, this balance of payments deficit has been experienced at a time when the government itself is running a fiscal surplus. in other words, it has been the private sector which has been borrowing heavily from overseas, not the public sector. and while some of this borrowing has been done by the corporate sector directly, much of it has been done by the banking sector. comparable levels of overseas borrowing by some asian banks have been sufficient to make foreign lenders very nervous, and yet similar nervousness has not been at all evident in new zealand. why? i can only conclude that the foreign lenders take considerable comfort from the fact that most of the banks operating in new zealand now are in fact wholly - owned by foreign banks, or are indeed branches of foreign banks. those parents are seen as being financially strong, and fully able to back the operations of their new zealand subsidiaries or branches. ( it may also be relevant that, overwhelmingly, the overseas borrowing being undertaken by new zealand banks carries no foreign exchange risk for the banks themselves. ) in some countries, there is political reluctance to allow foreign institutions unrestricted entry into local banking sectors. i would have to say that, as a country where all but one of our 19 banks are owned and controlled overseas, we have seen absolutely no disadvantages from this situation, and many advantages. we have a financially stable banking sector, with vigorously competing and highly innovative banks, all of them subject to the monetary policy influence of the central bank. i have no doubt at all that the banking sector is considerably more stable than would have been the case had all the banks been domestically - owned

third area that financial institutions need to do is to establish firm - wide risk management and foster an appropriate risk management culture. in this crisis, several institutions that failed were managing risks within “ silos ”, by organisational structure or by risk types. in terms of culture, the focus on expanding earnings needs to be matched with an equal focus on risk and control. senior management and staff at the business lines need to comprehend, and be accountable, for the risks which emanate from their activities. risk managers have to be empowered to call a stop to the dance even while the music is still playing. it is in this context that the recent financial stability board principles on compensation have been formulated, to align compensation to prudent risk taking. so far, i have highlighted some of the challenges facing regulators and industry participants. academics, researchers and institutes such as rmi, play important roles in supporting the financial industry in its journey to improve risk management practices. let me now touch on the role that rmi can play. rmi ’ s role in the aftermath of the crisis as a knowledge centre in financial risk management, rmi acts as the link between theory and application, bringing together researchers, risk managers and regulators to share experiences and views on risk management. i believe rmi can do more to facilitate this. let me suggest three broad areas. first, as researchers are removed from the fray of day - to - day action, you can step back and ask fundamental questions about risk management practices, identify gaps, and facilitate innovation in risk management techniques. i am pleased to learn about your credit rating project, which aims to provide rigour and transparency to the financial assessment of regional corporates. the value of such work is that it is grounded on sound empirical and theoretical work, with a clear focus on solving practical, impactful problems. in the same vein, rmi ’ s regular workshops and lecture series serve as useful platforms to present findings to the industry, and to encourage two - way discussions. mas fully supports rmi ’ s initiatives to deepen its collaboration with the industry. second, as a repository of knowledge on risk management, rmi plays an important role in education. rmi has been appointed as the lead provider on risk management under the financial industry competency standards ( fics ). you have launched 50 accredited programmes across seven risk management job families over the past year. to support the role of boards and senior management in risk management, i hope that rmi would consider