’ s important also that small and large countries alike understand each other ’ s needs. these needs include meeting national sovereignty objectives and adapting bis central bankers ’ speeches the regulatory response to local conditions, while also meeting the spirit and desired outcomes of the basel iii standards. small open economies differ from their larger counterparts in several respects : • their economies are often less diversified and are more vulnerable to external shocks ; • a large portion of their banking system may be foreign owned and regulated by home and host supervisors. their shadow banking sector is usually smaller and less developed than in the larger economies ; • they tend to have less sophisticated financial market infrastructures, with limited or no opportunities for local central clearing ; • credit risk is often concentrated in just a few sectors ; • bank balance sheets are less complex, with a predominance of vanilla banking rather than investment banking ; and • there can be a shortage of highly - rated liquid assets, especially when governments run budget surpluses or small deficits, and where equity and corporate bond markets are small and lack liquidity. these differences can affect the way small countries choose to implement global standards. when there ’ s symmetry between financial market practices, small country regulators usually seek to align practices to global standards, so as to minimise the cost for banking groups operating across jurisdictions. when symmetries aren ’ t apparent, regulators in small economies seek to use the flexibility in global standards to adapt to local conditions. for some small countries, parts of the global standards have limited relevance or relate to low areas of risk, so their adoption may not be a priority. for new zealand, shadow banking comes into this area – it ’ s a small sector, which we assess to be low risk. in other cases the alignment of global standards is influenced more by home regulator rules or market imperatives. for instance, requirements for central clearing and trade reporting of otc derivatives may be imposed by the home regulator, or by counterparties, independent of any host supervisor requirement. before concluding, let me make a few brief comments about new zealand ’ s approach. as a financial regulator, the reserve bank of new zealand generally seeks to align with international standards, but uses national discretion to adjust for local conditions as needed. where we make adjustments we seek to achieve regulatory consistency, mindful also that our approach is : • to foster market discipline by stressing self discipline by banks in managing risks, and • to avoid supervisory practices that might erode market discipline or weaken the incentives for a bank

indefinitely and all of us wanted to believe that. sadly, we can not, or at least there is no evidence yet that we can. the very fast growth of 1993 and 1994 was the result in part of the one - off productivity gains resulting from the micro - economic reforms of the late 1980s and early 1990s, and in a greater part of the economy having available a large number of unemployed and underemployed people, and unutilised industrial capacity, as a result of the recession of 1991 and early 1992. as these people and this capacity were brought back into productive work, the rate of growth of real output jumped well above its sustainable rate. the rate of unemployment fell very sharply from almost 11 percent to just over 6 percent in little more than three years and, while everybody hopes that unemployment falls further, it is clearly impossible to reduce the rate of unemployment by 5 percentage points every three years indefinitely. as i told the members of the auckland chamber last year, economic growth depends primarily not on monetary policy but on real factors - on how fast the labour force is growing, on how skilled the labour force is, on how much capital that labour force has to work with, on the technology embodied in the capital, on the efficiency of the price system in signalling where capital can be most productively invested, on the nature of regulations and restrictions which inhibit the effective working of the price system, and a host of other factors. prices which are, on average, stable assist the pricing system to work effectively, and thereby help to ensure that investment takes place in the most economically sensible places. prices which are, on average, stable tend to encourage saving, and thereby help to finance additional investment. but stable prices won ’ t make the labour force grow more quickly, or make the labour force more skilled, or improve the technology embodied in the capital equipment which the labour force uses, let alone make public sector enterprises more efficient ; or improve the quality of the education system ; or move resources out of highly protected sectors into those which can be competitive on international markets ; or improve the marketing of commodity exports ; or even give us east - asian - type savings rates. i would argue strongly that price stability has been helpful to the improved performance of the new zealand economy in recent years, but i have never claimed for a moment that price stability has been the sole reason for our better performance, nor that price stability guarantees us strong growth in the future. in addition to our ability to bring back into productive