framework is somewhat less intrusive than that of many countries, it nonetheless contains most of the standard features. the imf in its financial sector assessment programme ( fsap ) review of the new zealand financial system last year confirmed that we have a good model for host country supervision. the centre - piece of the regulatory requirements is a requirement that banks in new zealand be adequately capitalised. we apply the standard basel i capital accord in much the same way as do other supervisors. in the case of overseas - owned banks, we require the bank in new zealand to be sufficiently capitalised in its own right, with not less than 8 per cent capital. this serves two purposes. it reinforces the responsibilities of the local board and management, since they have a balance sheet for which they are clearly responsible. and it provides a financial buffer should the bank incur losses in new zealand, or should the parent bank fail and its new zealand subsidiary have to be “ cut loose ”. banking supervision and failure management this brings me to the second element of our statutory responsibilities - to avoid significant damage to the financial system that could be caused by the failure of a registered bank. absolutely critical in this situation would be that the new zealand authorities have the ability to take control of the failed bank in new zealand. without that ability to take control, and to take control quickly, we could not manage the situation. and in the case of a systemically - important bank, just shutting the doors generally would not be an acceptable response. in most cases, our objective would be to maintain the provision of critical banking services, but without resorting to a bail - out ; certainly not a bail - out of existing shareholders, and desirably not of depositors and creditors, who could expect to bear some of the losses. to achieve those outcomes, the new zealand authorities would need to have access to the critical operating and information systems necessary to operate the bank, and more or less immediately on the failure occurring. i should hasten to add that none of this means that, in the event of a bank crisis involving an overseas - owned bank, the rbnz ’ s first preference would be to act unilaterally. in most situations a co - ordinated response involving home and host country authorities would be much preferred - from both authorities ’ points of view. but a co - ordinated response requires that both authorities have a capacity to manage the situation in their jurisdiction. it would also be unrealistic

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