are changing and businesses need to change to remain relevant. such change takes courage, action and investment. one thing is for sure, however, highly indebted businesses will have the least ability to invest ahead of these societal expectations – and for innovation more generally. going back a few years to the 1990s and 2000s, new zealand ’ s agriculture sector saw widespread conversions from sheep and beef farming to dairy. the number of sheep in new zealand more than halved, while the number of dairy cattle more than doubled23. this transition was driven by increased global demand for dairy products, which led to higher milk prices24. meanwhile, wool and meat prices have been less attractive than they once were. these farm conversions required significant investment. banks helped to fund this investment by lending heavily to the sector. agriculture debt in new zealand increased from $ 5 billion in 1990 to $ 63 billion today. two thirds of this debt is owed by dairy farms25. looking more closely at dairy farming in aotearoa, debt has grown much faster than output – debt per kilogram of milk solids produced has quadrupled in 15 years26. the rapid increase https : / / www. mfe. govt. nz / fresh - water / we - all - have - role - play / land 22 https : / / www. mfe. govt. nz / ets 23 stats nz data 24 global dairy trade auction data rbnz agriculture survey, standard statistical return ( ssr ) and bank balance sheet ( bbs ) rbnz agriculture survey, rbnz bank balance survey and dcanz production data. ref # 8528795 in agriculture debt has been fuelled by banks ’ aggressive and loose lending standards over recent years. 27 while bank lending allows businesses to quickly take advantage of new opportunities, high debt comes with high risk. when times get tough, or when capital is needed to grow, highly indebted businesses find it much harder to weather the storm and remain relevant. this is a symptom of short - term thinking that is not sustainable. banks ’ incentives are not the same as the farmers. banks ’ business is to lend, and they are incentivised to manage the risk of their overall portfolio for the long - term, rather than the risk of any individual farm or business. this is why banks are critical and efficient in a modern economy - but debt must be used with care. a bank has a more diversified portfolio, so it will almost certainly survive a resonable

mr. brash looks at the implications of the global financial marketplace for new zealand address by the governor of the reserve bank of new zealand, dr. donald brash, to the single financial services market conference in wellington, on 19 / 11 / 97. introduction it ’ s a great pleasure to be here today to share some thoughts with you on the global financial marketplace, and its implications for new zealand. we have recently had a dramatic example of how events in one country can spread rapidly. the recent share market collapse that began in hong kong and spread to equity markets around the world, including new zealand, illustrates just how integrated global financial markets have become. designing and implementing an effective financial policy in pursuit of national goals, in a world of highly integrated capital markets, is one of the most topical and challenging tasks in central banking today. to keep my presentation today within manageable bounds, and reflecting my professional interest, i will constrain my comments to one of the important functions of a central bank, namely, the preservation of stability in the financial system. our focus at the reserve bank is on promoting the maintenance of a sound and efficient financial system in new zealand. this focus involves establishing a policy environment to counteract the possibility of contagious spread of financial distress, and in particular is aimed at encouraging prudent bank behaviour. i will begin by sketching out some of the key trends in global finance, and will then describe the international regulatory response to these developments. along the way, i will tease out the implications for new zealand, and test our approach to banking supervision against these global developments. i will conclude with some crystal ball gazing. trends in the global financial marketplace let me begin then with some observations on the rapidly changing global financial marketplace. it is now a commonplace that barriers between countries and financial markets, at least in developed countries, have largely disappeared, and this fact, together with new technologies, new financial instruments and new funding techniques, means that financial intermediation is increasingly global. fundamental to this trend has been the way in which advances in computer and communications technology have reduced the costs of cross - border transactions by lowering the costs of collecting and analysing data, undertaking transactions, clearing and settling payments and monitoring financial flows. and the cost reductions have been very dramatic. a recent article in the economist noted that “ the cost of a three - minute telephone call between london and new york has fallen from us $ 300 ( in 1996 dollars ) in 1930 to us $ 1