system with international financial markets means that the adoption of the key elements of the basel framework is desirable ; a strong degree of commonality between new zealand ’ s banking regulations and those of the major countries enhances our financial system ’ s international credibility. thus, while there might be efficiency gains from a more streamlined regime that is free of unnecessary complexity, there would also be efficiency losses if the new zealand regime ceased to be recognised as broadly in line with international standards. this could result in a higher risk premium in bank funding costs and potentially reduced access to international capital markets. as you might expect, much of the “ demand ” for adopting basel regulations in new zealand comes from the four major australian - owned banks, who generally seek to have a regulatory framework that is closely aligned with the australian prudential regulation authority ’ s ( apra ) requirements. the fsap report acknowledged the reserve bank ’ s close cooperation with apra and recommended that we strengthen this relationship further. we will continue to develop the relationship with apra but both sides are well aware of the differences in our circumstances and our different regulatory approaches. over recent years we adopted most of the key basel initiatives even when some have been less than ideally suited to new zealand circumstances. at the same time the reserve bank has taken on additional compliance oversight roles, some of which require specialised skill sets. two examples are the oversight of banks ’ internal capital models and the non - objection process for bank capital instruments. such activities do not sit very well with the regulatory philosophy that i have described. nor are they easily handled with the limited resources of a small central bank. such an approach has however been consistent with maintaining recognition of the new zealand regulatory regime by international investors and rating agencies. the imf takes the view that our framework needs to be brought more into line with the international orthodoxy. the recent fsap report 2 on new zealand found the reserve bank ’ s prudential framework to be less than fully compliant with the basel core principles in many areas. this assessment relates more to the reserve bank ’ s intensity of supervision than to its adoption of basel standards per se. the imf recommends that the reserve bank take on significantly more resources in order to : more proactively engage with the banks ; issue more comprehensive rules and guidance on key prudential matters ; and more frequently verify and enforce compliance. can we retain our regulatory approach and still achieve the benefits of international recognition? i believe we can. notwithstanding the views of the imf,

of inflation from its longer - run goal. ” 5 by replacing the word “ deviations ” with “ shortfalls ” when describing employment and the committee ’ s reaction to changes in employment relative to estimates of its maximum level, the committee indicated that it would not act preemptively to curb inflation based only on the perception of labor market tightness. another notable change to the strategy statement was the adoption of what some refer to as “ asymmetric flexible average inflation targeting ” or “ temporary price level targeting. ” 6 specifically, the new statement noted that “ in order to anchor longer - term inflation expectations at [ its 2 percent goal ], the committee seeks to achieve inflation that averages 2 percent over time, and therefore judges that, following periods when inflation has been running persistently monetary policy, ” a symposium sponsored by the federal reserve bank of kansas city, held in jackson hole, wyo. ( via webcast ), august 27, https : / / www. federalreserve. gov / newsevents / speech / powell20200827a. htm ; and richard h. clarida ( 2020 ), “ the federal reserve ’ s new monetary policy framework : a robust evolution, ” speech delivered at the peterson institute for international economics, washington, august, 31, https : / / www. federalreserve. gov / newsevents / speech / clarida20200831a. htm. see the most recent statement on longer - run goals and monetary policy strategy, available on the board ’ s website at https : / / www. federalreserve. gov / monetarypolicy / files / fomc _ longerrungoals. pdf ( quoted text in paragraph 5 ). previous versions of the statement had noted that the committee would seek to mitigate “ deviations of inflation from its longer - run goal and deviations [ emphasis added ] of employment from the committee ’ s assessments of its maximum level ” ( paragraph 5 ). for a more detailed look at the changes in the 2020 strategy statement relative to the earlier statement first adopted in 2012, see board of governors of the federal reserve system ( 2021 ), “ review of monetary policy strategy, tools, and communications, ” webpage, https : / / www. federalreserve. gov / monetarypolicy / guide - to - changes - in - statement - on - longer - run - goals - monetarypolicy - strategy.