, with rising incomes, shifted their eating preferences towards protein - based diets. the currencies of commodity producing nations became in - demand, appreciating in value as capital flowed into them, creating problems for import competing industries and, in some cases, exporters as well as the control of domestic monetary conditions. when the financial collapse occurred it was sudden, and sharp, and unprecedented in the post - second world war era. global financial institutions, big names, were wounded, some fatally, others less so. some required bail - outs from governments. financial markets were in turmoil, unable to distinguish between potentially “ good ” names and potentially “ bad ” names and, for a short period, the flow of money in the world economy practically stopped. even small financial markets like in new zealand were caught in this maelstrom. in concert with other governments around the world, we were forced to take action to safeguard our domestic - based financial institutions. the difference for new zealand, though, was that the vast majority of the growth in financial assets was held on the balance sheets of the four large australian owned banks. rather than on - selling mortgages or transforming their risk through complex financial derivatives, new zealand ’ s domestic banks had supplied plain - vanilla financial products and avoided an excessive leveraging of their capital. furthermore, lending standards in new zealand, at least within our banking system, had generally remained sound. but within parts of our non - bank deposit taking sector – most notably the finance companies – new zealand experienced its own homegrown example of poor risk management, leading to considerable financial loss for many people. high risk loans made in areas like property development, financed from household deposits, proved to be an unsustainable combination when property markets turned down from around 2007 onwards. a lesson from the gfc for risk managers is that “ innovative financial products ” should be treated with a great deal of scepticism. understanding where the true risks lie and how they could play out when economic fortunes change is paramount. another lesson is that poorly managed risks may take years to be realised. the build up of risk on financial institutions ’ balance sheets, which was uncovered by the gfc, was created over a number of preceding years. bis central bankers ’ speeches the current situation the new zealand economy was not immune to the collapse in world financial markets. as credit growth and commodity prices tumbled, our gdp shrunk through 2008 and in the first half of 2009. but, by the

as risk professionals you must systematically identify the key areas of risk for your institution and develop a built - in resilience and ability to respond to whatever happens. anticipation and not the “ ambulance at the bottom of the cliff ” is required. in table 1 some key risks are set out. your challenge is to interpret these macro developments and translate them into tangible business meaning. table 1 areas of focus risk themes key points and area of focus global economic and political • • • • • • high and volatile energy costs sovereign debt and austerity issues fragility and interconnectedness of the financial system eurozone developments credit, funding and liquidity conditions rising influence of asia domestic landscape • • • • • growth household and business spending exchange rate developments property prices agriculture sector environmental • • natural disaster preparedness business continuity planning information technology • • significant dependency on technology high impact risk area operational risk • • change and uncertainty increase operational risk operational risk is pervasive and relates to many other risks that materialise bis central bankers ’ speeches the first group relate to global economic growth and relevant questions for decision - makers, who have the ultimate responsibility to mitigate risks, are what does this mean for product demand and prices, cost of production, transport and supply of goods and services? actually these questions are fundamental to how institutions are run. what is being suggested here is that a bit more thought is given to how events might deviate from what is perceived to be “ normal ” ; what steps should be taken in settled times to ensure the future of the enterprise and through doing so the wider role it plays in society. in our globalised and wired environment the speed at which information is transmitted would suggest that no one should be surprised at the consequences of a collapse of steel prices in china or a deep liquidity crisis in european funding markets. the point in question is to what extent have these types of events been imagined and planned for, sorting the “ sheep from the goats ”. tools such as stress testing and scenario analysis, if rigorously deployed, can provide valuable insight into the uncertain future and assist in preparing the institution to deal with an existential crisis that may arise. in terms of the bank, as you would expect, considerable effort is placed on monitoring and assessing all financial risks as these are of high relevance to monetary policy, our prudential and supervisory responsibilities as well as the management of our $ 27 billion balance sheet. the second area noted in table 1, which is inextricably linked to