alan bollard : where we are going with macro - and microprudential policies in new zealand speech by dr alan bollard, governor of the reserve bank of new zealand, with messrs bernard hodgetts and mike hannah, at the basel iii conference, sydney, 25 march 2011. * * * thanks to mike hannah and bernard hodgetts for assistance in preparing this speech and to grant spencer, toby fiennes, michael reddell, yuong ha and anella munro for useful comments. introduction following the global financial crisis, there has been general acceptance of the need for central banks and financial regulators to adopt a greater “ macro - prudential ” orientation to their supervision of financial systems and institutions. while the objectives of prudential policy are usually systemic, the policies have focused on ensuring the balance sheets of individual institutions are robust to shocks. the crisis showed that this micro - prudential approach can sometimes miss important system - wide financial risks. so, policymakers are increasingly focussing on the resilience of the financial system as a whole, and in particular on the capacity for pro - cyclical lending behaviour to amplify the macroeconomic cycle in a destabilising manner. i will return to these concepts and issues later. there is currently considerable interest in macro - prudential instruments – policy tools that might be used to promote a more stable and resilient financial system and help smooth the credit cycle, reducing the risk of boom - and - bust cycles. these tools would take the form of specific prudential requirements placed on the balance sheets of banks or other financial institutions, such as capital requirements that vary over time, or restrictions on lending like loan - to - value caps. this is not to suggest that micro - prudential policy is unimportant or that existing tools cannot be enhanced. on the contrary, a strong micro - prudential framework is essential for a robust financial system and remains at the heart of our efforts to maintain stability in the financial system. the basel committee on banking supervision ( the basel committee ) is now close to completing a major strengthening of the micro - prudential framework, while keeping systemwide stability objectives firmly in mind. micro - prudential policies / tools the basel committee has developed and released new global regulatory standards for bank capital adequacy and liquidity, as endorsed by g20 leaders at their november 2010 summit. while the frameworks are now broadly set, further work

stable business environment for the private sector as also for the inflow of capital for domestic investment. since its establishment in 1952, a major responsibility of sama has been to maintain financial stability and promote growth of the national banking industry. as far as sama's objective of maintaining a stable financial system, its achievements have been equally remarkable. sama has followed prudent policies aimed at creating a sound, stable, and efficient financial system. such a system has been characterized by freedom of capital flows, open investment climate, availability of ample liquidity, competitive environment and a modern payment system. over this long period, sound laws and regulations and timely supervisory actions have ensured that saudi banks have stayed strong with adequate capital, efficient management, fit and proper directors and managers and sound internal control systems. this is a remarkable achievement in the face of global and regional uncertainties, political and economic crises, wars and conflicts and the volatilities of the oil and currency markets. sama's focus on achieving and maintaining financial stability is premised on the belief that it is a fundamental precondition for sustained and dynamic economic growth in which all market participants are able to make optimum contribution to the economy. financial stability not only promotes efficient domestic investment activity but also creates a positive environment to attract foreign capital and foreign investors. dear audience, over the past decade, the saudi arabia's financial system has been changing at an escalating pace. the banking sector, being one of the pillars of the financial system, has 20 licensed banks including 16 that are operational and 4 that are planning to become operational over the next year. the newly licensed banks include 6 regional and 3 major international banks. as for the insurance industry, sama has recently been involved in licensing of 14 insurance companies that are now in the process of becoming operational within this year. sama also continues to regulate a number of money - changer organizations as well as a few lease finance and consumer finance companies. the financial sector also includes several autonomous government financing agencies as well as the state - owned pension fund and the general organization for social insurance. these institutions participate in the financial sector in pursuit of their specific objectives, and also play an important role as institutional players and investors in deepening the financial market. saudi banks have made tremendous progress in terms of products, services, technological sophistication and capitalization. sama has all along been keen that banks conduct their business on sound principles. the banking control law, enacted in