this by making use of apra's and the reserve bank's comparative advantages and knowledge bases, by seeking to optimise the use of overall supervisory resources, and by sharing any assessments and other information needed. what is the reserve bank trying to achieve with basel ii overall? observance of the principles i noted earlier on, of greater risk - sensitivity in capital requirements and of the need for levels of bank capital to be held stably and sustainably at sufficient levels to account for unexpected loss, should i hope not be remarkable. what is more the focus of our implementation work at the next level down, particularly for the banks seeking to use the internal models approaches, is to ensure that the more intensive supervisory attention is paid to the accuracy with which those banks'internal models capture and appropriately account for the particular characteristics of the new zealand economy and financial system. i do not want to leave you with the impression that basel ii is all we are doing on the front of improving financial regulation. to come back to the themes i introduced at the outset, although our basel ii implementation effort is a major one, we are in addition pursuing a range of other initiatives and completing work on earlier projects directed towards enhancing the soundness and efficiency of the new zealand financial system. these projects include the implementation of the outsourcing and local incorporation policies for large banks, both of which were finalised recently. also, the reserve bank is working with other agencies to advance the legislative changes proposed by the trans - tasman council on banking supervision, which new zealand minister of finance michael cullen and australian treasurer peter costello recently agreed to promote. we are actively working with other new zealand regulatory agencies to develop reforms to the regulation and supervision of the nonbank financial sector, and with the industry to improve the resilience of the payment and settlement system. and we are working with the banking industry and others to establish an appropriate state of readiness in new zealand for a pandemic. i hope this brief rundown of one important aspect of the reserve bank's regulatory activity as it affects banks gives you a flavour of the approach we are taking, and why. the reserve bank will work to ensure that the implementation of basel ii in new zealand, among our other regulatory activities, fits well with and supports the reserve bank's primary function of maintaining price stability through monetary policy - and the benefits in economic stability that that provides. financial stability and economic stability are strongly connected - and this is why we believe that our roles

alan bollard : investing in a low inflation world address by dr alan bollard, governor of the reserve bank of new zealand, to the auckland club and the mba business meeting, auckland, 14 october 2003. * * * the theme of my speech today is " investing in a world of low inflation ". new zealand has succeeded in achieving a low inflation rate and keeping it stable for more than a decade now. the average cpi inflation rate since 1992 has been just 2 per cent per annum, as against an average of 12 per cent per annum in the 1970s and 1980s. i have chosen my topic because i fear that, currently, too many new zealanders are taking higher risks than they realise in their investment and borrowing strategies, because they don't understand that investing in a low inflation environment may be quite different from investing in the high inflation environment of earlier decades. some of these risks arise due to the mix of assets new zealanders are investing in. i suspect that too many households may be over - exposed to real estate investment, and that too many are becoming increasingly exposed to relatively high risk financial investments, without fully appreciating the risks involved. also, there are some risks relating to the extent of borrowing being undertaken by households, which has left many households with very high levels of debt. before getting into these issues, let me briefly say why i think this topic is important, and why the reserve bank takes a close interest in the issue of saving and investment. households making well - informed saving and investment decisions not only make themselves better off, but also contribute to the stability of the financial system and growth across the economy. of course, at any point in time, not all new zealand households are in a position to save and invest, and not all savers can afford anything other than a house as their investment. currently, about one third of households own their house mortgage - free, putting them in a good financial position to consider a range of investments. a further third live in a house they own, but with a mortgage, and for these households a strategy of reducing the mortgage as quickly as possible may make a lot of sense. the remaining third live in rented accommodation, and some of these households may have a strategy of saving to buy their own home. however, for households in any of these categories, if their financial position and scope to invest in a range of assets improves, important decisions about investment strategy arise. those strategies often involve investing greater proportions of funds