of stability in the home financial system. they have no responsibilities for the stability of the host financial system. to the extent that they are interested in the stability of the host financial system, it is likely to relate to the possible impact on the parent bank ’ s operations in that system and the likely flow - on effects to the home financial system. a host supervisor therefore cannot rely on the home supervisor to act in the interests of the host financial system. similarly, host countries do not generally owe any formal duties to home countries or their supervisory authorities. the home and host countries can have very different views on the choice of techniques for responding to bank distress. clearly, the authorities in each country will have a menu of choices available, ranging from institutional bail - outs to liquidation, with intermediate options available in some circumstances. these choices have to be made on the basis of an assessment of the costs and benefits of alternative approaches within each market, and there can be no assurance that different countries will - or should - necessarily come to the same conclusion. moreover, home and host authorities may have quite different perceptions of when a crisis is systemic. the failure of a bank operating in the home and host countries may represent a major systemic crisis or a threat to the reputation of the financial system in the host country, while being of relatively minor significance in the home country - or vice versa. in the former case, the host authorities would therefore attach great importance to a quick and effective resolution of the crisis, while the home authorities may be less concerned. again, this could impede the ability to implement a coordinated response to the crisis. these matters are not straightforward when there is a largely bilateral relationship between home and host countries, of the kind faced by new zealand. matters become even more complicated when a parent bank has many operations in different countries. in these circumstances, the prospect of a large number of supervisors being able to agree on co - ordinated action within a short time - frame is not good. the international record tends to show that supervisors have effectively been placed in a position where they have had to act on their own judgement, in the light of their own particular circumstances, when complex cross - border bank insolvencies have occurred. the need for robust host supervision arrangements for these reasons, and in the absence of any fair and formalised, operationally and legally robust, international framework, we at the reserve bank of new zealand think it would be very imprudent for a host authority to rely on the

at norges bank ’ s executive board meeting on 21 april 2004. in reaching its decision, the executive board had weighed the objective of bringing inflation back to target and stabilising inflation expectations against the risk that output growth may eventually become too strong. furthermore, according to norges bank ’ s assessment, with a sight deposit rate of 1. 75 per cent at present, the probability that inflation two years ahead will be lower than 2½ per cent is greater than the probability that it will be higher.