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

second, the evidence to date suggests that, following the global crisis, households and businesses are considerably less willing to take on new debt. credit growth remains very subdued. we believe that this diminished appetite for debt will remain for some time as people and companies work to gradually strengthen their financial positions. third, unlike the situation over much of the past twenty years, new zealand is now facing an upward sloping yield curve – longer term interest rates are higher than short - term rates. this means that fixed rate mortgages are now more expensive than floating or very short - term fixed rate mortgages. this has seen many borrowers shift back to floating rates over the past two years. as a result, as we move the ocr higher it is likely to have more “ bite ” than it did previously. liquidity management as the global financial crisis broke, a key policy response from the reserve bank was the expansion of liquidity facilities that we provide to banks and other financial institutions, including a broadening of acceptable collateral instruments. this expansion of facilities was needed to ensure that the financial system remained liquid and that institutions could continue to make payments as required without creating undue stress in the interbank market. in particular, as the banks ’ access to global markets became very restricted in late 2008 – early 2009, the reserve bank provided access to term funding secured over mortgage backed securities. the banks also increased their use of parent funding during this period. with the crisis behind us, we have been reconsidering the appropriate role and scope of the reserve bank ’ s liquidity facilities. the crisis has demonstrated the value of liquidity support for fundamentally sound institutions in the face of systemic market disruptions. while it is important that institutions provide for their own liquidity in the first instance, it is clear that central bank liquidity facilities are an essential backstop at times when shocks to confidence cause market liquidity to dry up. key requirements for central bank facilities are that : their pricing encourages a return to normal market trading ; they are targeted at system liquidity, not individual institutions ; and they are fully collateralised. in light of the gfc experience and the bank ’ s broader mandate to promote the efficiency of the financial system, we intend in the future to adopt a somewhat broader approach to liquidity management than was the case prior to the crisis. the range of securities that we accept as collateral will be wider than in the past in order to help support liquidity in a number of key financial markets. such markets