##fc to be a significant vulnerability of the banking system and we were keen to reduce this risk as soon as possible. our aim was to be in line with basel thinking but we wanted to move promptly and did not wait for final decisions on the basel standards. it was also evident early on that the basel emphasis on hqlas was going to be an issue in new zealand where some two thirds of government securities are held offshore, contributing to a general lack of liquidity in debt markets. the rbnz ’ s liquidity mismatch ratio3 is very similar in concept to the lcr. we have a oneweek ratio which requires banks to hold sufficient primary liquid assets4 to meet net outflows under a one week name crisis. there is also a one month mismatch ratio requirement where primary and secondary liquid asset holdings must be sufficient to meet potential outflows under a 30 - day crisis. there is a close alignment between the eligibility of assets to meet the rbnz liquidity standards and the eligibility of those assets as collateral in rbnz operations. the nsfr is designed to ensure that banks maintain a stable funding profile in relation to the characteristics of their on - and off - balance sheet activities. in particular, the nsfr limits over - reliance on short - term wholesale funding, encourages better assessment of funding risk, and promotes funding stability. bis “ basel iii : the net stable funding ratio ” january 2014. see appendix 2 for definitions. bis central bankers ’ speeches this acknowledges the role of central bank eligibility in underpinning private market liquidity as well as the central bank ’ s ultimate role as lender of last resort to the banking system. restrictions are placed on holdings of the lower quality “ secondary ” liquid assets in order to ensure that banks hold a majority of primary rather than secondary liquid assets. more importantly, from an overall funding risk perspective, rbnz introduced a core funding ratio4 ( cfr ) similar to the proposed nsfr. the current minimum requirement of 75 percent was phased in over a three year period. the cfr requirement has promoted a significant improvement in the stability of the new zealand banks ’ funding base, with short term wholesale funding falling from 35 percent of total funding in 2008 to 15 percent in 2013. while the cfr was introduced as a micro - prudential requirement, the rbnz has more recently nominated the cfr as a potential macro - prudential instrument. this means that the cfr could be adjusted through the financial cycle with a

g20 countries and elsewhere are on the rise. economies are grappling with the spillovers from unconventional monetary policies and heightened political uncertainty has also been making households and businesses more cautious. ii ) the current expansion is longer, but also weaker than previous expansions at 28 quarters, the current economic expansion is the second longest in the past 40 years. annual real gdp growth has averaged 2½ percent during the expansion, making it the weakest expansion during that time. over the past year however, annualised gdp growth has accelerated to a little over 3½ percent ( figure 2 ). figure 2 : real gdp growth over new zealand business cycles index recession gdp ( log levels, indexed mar2010 = 100 ) 39 quarters at 0. 91 % quarterly growth 18 quarters at 0. 74 % quarterly growth 28 quarters ( to date ) at 0. 62 % quarterly growth 24 quarters at 0. 99 % quarterly growth 18 quarters at 0. 71 % quarterly growth source : statistics new zealand, rbnz. recessions are defined as two or more consecutive quarters of negative quarterly growth. iii ) the drivers of the expansion have changed initially the expansion was driven by improving terms of trade ( which improved steadily from september 2009 and reached a 40 - year high in june 2014 ), growing trade with china under the free trade agreement, and the stimulus from the 575 basis point decline in the official cash rate ( ocr ) between mid - 2008 and mid - 2009. increased construction investment, initially linked to canterbury earthquake reconstruction, and the strong surge in migration and tourism have offset the effects of the 8 percent fall in the terms of trade since mid - 2014 and contractionary fiscal policy since 2012. monetary policy continues to be accommodative with the ocr remaining well below the estimated neutral interest rate, which is currently just below 4 percent. these factors continue to be the main drivers of the expansion, although canterbury reconstruction is no longer a contributing factor. iv ) record migration, record tourism, and historically high labour force participation in annual terms, net immigration has been the strongest since 1860. net permanent and long - term migration of 172, 000 working age people has increased the labour supply by 5 percent since 2012. annual potential gdp growth has more than doubled to around 2. 9 percent from its 2010 trough of 1. 2 percent, primarily because of this labour force expansion. private consumption is being boosted by the strong growth in migration, record tourist inflows and the 11¼ percent increase in employment over the