, spain ( 16 per cent ) and the united states saving and loan crisis ( 3. 2 per cent ). 1 and these are just the fiscal costs. the cost of bank failures is not limited to the cost of rescuing banks or bailing out depositors. the real economy costs can be greater and longer term, including weakened investor and consumer confidence, higher borrowing costs, potentially protracted credit contractions and, in consequence, lower economic growth. given this combination of critical importance and potential fragility, no country can afford to view its banking system with indifference. the banking system is something that is central to a nation ’ s economy. and that applies whether the banks are locally - or foreign - owned. indeed, some countries, including australia, appear to see banks - at least the large, systemically - important, ones - as being so central to their economy as to preclude them from being foreign - controlled. source : hoggarth g, and v saporta, “ costs of banking system instability : some empirical evidence ”, bank of england financial stability review, june 2001. by contrast, in new zealand, as a matter of policy, we don ’ t restrict foreign ownership in banks, and all our systemically - important banks are foreign - owned. but, while we have seen no need to restrict foreign ownership, we do see a need for regulation of overseas - owned banks so as to provide reasonable assurance that the new zealand banking system could weather a period of banking stress. sometimes it is suggested that having banks that are owned by substantial foreign - owned banks is actually an advantage, because the foreign owners can be relied on to mount a bail out if the need arises. while this may often be true, i think it would be imprudent to rely on such an assumption. to be sure, experience indicates that, usually, parent banks do stand behind their overseas operations, since not to do so could seriously undermine market confidence in the parent ’ s own financial position, and would involve writing off the franchise value embedded in their overseas investment. but there will be occasions when an overseas owner is either unable, because of its own financial weakness, or because of home country regulatory constraints, to provide that support. these cross - border issues are something that many countries, particularly the growing number with a significant foreign bank presence, are having to come to grips with. increasingly we are being confronted with the fact that shareholders, customers, and taxpayers, not only have different interests

alan bollard : supervising overseas - owned banks : new zealand ’ s experience address by dr alan bollard, governor of the reserve bank of new zealand, to the trans - tasman business circle, sydney, 11 august 2004. * * * in many respects the australian and new zealand economies are similar. with banking, however, there is a big difference - the new zealand banking system comprises banks owned overwhelmingly from abroad, whereas in australia the banks are mainly australian - owned. of course, the main overseas - owned banks in new zealand are australian - owned banks and, in this sense, it might be said that banking is another thing we have in common. but that would be to overlook that banking authorities in countries with predominantly overseas - owned banks face some additional, and different, issues from those in which the banks are mainly locally - owned. these differences include different roles in the supervision of banks, depending on whether one is the supervisor of the “ home ” country parent bank, or, as is predominantly the role of the rbnz, a “ host ” supervisor of overseas - owned banks. more broadly, and more importantly, for a country whose banking system comprises predominantly overseas - owned banks, there are different issues concerning the capacity of its banking system to weather a crisis. in this regard, overseas ownership can be both an undoubted strength, but also a potential risk. there are also issues concerning the depth and breadth of financial services that overseas - owned banks provide to the local economy. in new zealand we are a very welcoming host of overseasowned banks, but we also look for our “ guests ” to be good guests, and to make a positive contribution to the new zealand economy. a number of things have happened recently to raise interest in these issues. first, there has been the take - over by the anz of the national bank of new zealand, previously owned by the british bank, lloyds tsb. this means that about 85 per cent of new zealand ’ s banks, measured by total assets, are now australian - owned. australia and new zealand also now share the same “ big four ” banks. the anz owns the merged anz national in new zealand ; nab owns the bnz ; the commonwealth owns asb ; and westpac in new zealand trades as a branch operation. second, early this year the new zealand minister of finance and the australian treasurer put trans - tasman banking supervision on the initial agenda of issues for working towards a single