include : the nz dollar, bank bills, nz government securities, and local authority / soe stock. in addition, access to the bank ’ s overnight facility will be extended to major nz dollar settlement systems. prudential policy : banks turning to prudential policy, the global financial crisis has prompted a major review of policy internationally. in new zealand, the financial crisis highlighted shortcomings in the banks ’ management of funding and liquidity rather than credit losses of the sort seen in the major economies. a heavy reliance on short - term foreign borrowing by the nz banks meant they were vulnerable to the sort of liquidity shock experienced in late 2008 – early 09. while the banks ’ funding shortfall was met through parent funding and the reserve bank ’ s expanded liquidity facilities, the experience underlined the need for banks to lengthen the maturity of their liabilities relative to assets, in order to reduce their vulnerability to such shocks. to address these issues, the reserve bank introduced a new prudential liquidity policy for banks in april 2010. this policy requires that the banks hold sufficient eligible liquid assets to meet one - week and one - month liquidity mismatch ratio requirements. in addition, the banks must meet a core funding ratio requirement of at least 65 percent. core funding consists of customer deposits ( weighted by size ) and market funding of one year or greater to maturity. the core funding ratio requirement will rise to 75 percent by mid 2012. the banks have already made good progress in lifting their core funding ratios to be well in excess of the 65 percent minimum requirement. internationally, the moves to strengthen banking regulation are being led by the basel committee on banking supervision ( bcbs ), made up of banking supervisors from the major economies and convened by the bank for international settlements ( bis ). the bcbs has developed a number of proposals under the broad “ basel 3 ” label which are expected to be agreed at the upcoming g - 20 meeting in november. the proposals are focussed on strengthening banks ’ minimum capital and liquidity requirements. these include higher tier 1 capital requirements, a greater emphasis on common equity in tier 1 capital, and a leverage ratio to act as a backstop to the risk weighted capital regime. other proposals include more explicit liquidity requirements ( similar to those described above for new zealand ), arrangements for greater international coordination of supervision and revisions to international financial accounting standards. the crisis has shown that existing accounting standards are problematic for financial institutions in a number of areas such

from a weaker labour market in australia and may be more cautious in their spending. 2 3 vii ) the impact of wealth effects on private consumption has been weaker in the current cycle growth in real consumption per capita has averaged 1. 6 percent pa in the current economic cycle – about ½ percentage point below the post1993 average growth rate of 2. 1 percent, despite the rapid increase in housing wealth. although there are recent indications that per capita consumption is increasing, the lower propensity to consume out of household wealth and the increase in household saving have contributed to weaker than expected inflation. this more cautious consumer behaviour may reflect a reassessment of the ‘ permanency ’ of capital gains from household assets, and greater caution about the level and durability of future income growth. 4 viii ) new zealand ’ s terms of trade and the real exchange rate have been higher in this cycle global commodity prices were on a downward trend from early 2012 and fell sharply after mid - 2014. they began to pick up early this year. new zealand ’ s terms of trade began falling in the second half of 2014, but the real effective exchange rate has generally remained high reflecting new zealand ’ s higher economic growth and interest rates and the positive investment climate here compared to many other advanced economies. figure 4 shows the average real effective exchange rate and average terms of trade during the past three domestic expansions. figure 4 : new zealand ’ s terms of trade and real exchange rate index index real twi terms of trade ( rhs ) source : statistics new zealand, rbnz estimates. the real effective exchange rate is a measure of competitiveness that adjusts the nominal effective exchange rate by correcting for differences in relative inflation rates ( or relative unit labour costs ) between new zealand and its major trading partners. ix ) the recovery in household savings is reflected in an improved current account position and lower external debt ratios new zealand ’ s household net savings rate improved by 8 percentage points in the period 2008 to 2013 ( from minus 6 percent to positive 2 percent of household disposable income ( figure 5 ) ). over this period, new zealand ’ s overall savings rate ( ie including savings by the business and public sectors ) increased by around 5 percentage points, and this has been an important factor behind the improvement in new zealand ’ s ongoing current account deficit and the decline in net external liabilities as a share of gdp ( this ratio has declined from 84 percent of gdp in 2009 to around 63 percent of gdp