major contribution to the soundness of new zealand ’ s financial system. another benefit which we expect to see from the disclosure regime is a growing emphasis on the important role which bank directors play in overseeing the prudent management of their banks. the disclosure framework reinforces and provides a sharper focus on the duties of bank directors. in particular, it sharpens the focus on directors ’ duties to ensure that their bank has the necessary systems in place to identify, monitor and manage adequately the bank ’ s various business risks, and to ensure that those systems are being properly applied at all times. the disclosure requirements are also likely to increase the accountability of bank directors and, indirectly, the accountability of various levels of management within the banks. as a result of the disclosure arrangements, we would expect to see directors taking greater care than might otherwise have been the case to ensure that they are adequately discharging their obligations. in so doing, it is likely that directors will take steps to ensure that there are appropriate accountability mechanisms within the management hierarchy. over time, we expect that the increased accountability of bank directors will lead to an improvement in the quality of bank boards. shareholders now face stronger incentives to ensure that the directors of their banks have the appropriate skills, experience, integrity and judgement to fulfil the duties expected of them. another important benefit which we hope will flow from the disclosure regime is a reduction in the risk that the taxpayer will be called upon to rescue a bank. as a result of the disclosure arrangements we hope that there will be a stronger public perception that the management and directors of a bank have the sole responsibility for the management of their bank ’ s affairs. moreover, the public now has access to much the same information on banks as does the reserve bank, thereby eliminating the monopoly of information which supervisors generally tend to have in respect of a bank ’ s financial condition. both of these factors should assist in enabling future governments to resist the inevitable pressures to rescue a bank in distress or to insulate creditors from losses - at least to some extent. although the new supervisory framework places great emphasis on the role that market disciplines can play in promoting systemic stability, it is important to note that the reserve bank of new zealand has not abandoned its responsibilities for the financial system. we recognise that, for the time being at least, systemic stability is best served by a combination of market disciplines and banking supervision. in particular, we see value in : retaining some control over which entities may call themselves banks in new zealand

##reen argues that history shows the need for deposit insurance and a lender of last resort to contain systemic risks to the financial market. he suggests that, by analogy, there is an argument for an international lender of last resort, but muses whether the imf or any other candidate has the capacity to carry out such a role, or the ability to contain the moral hazard that results. in domestic markets, he argues that moral hazard concerns underscore the need for vigorous supervision and regulation of financial institutions covered by lender of last resort facilities. it is in this area that i have the greatest reservations about the eichengreen prescription, reflecting our own aversion to excessive reliance on banking supervision and on well - intentioned, but ultimately self - defeating, financial safety nets. but in accepting his previous point that occasional bouts of financial instability are likely to be a characteristic of deregulated financial systems, we are compelled to consider the need for some means of moderating the impact of those inevitable bouts of instability. where we differ, i think, is on the potential to push the management of those risks back to the private sector. • information and transaction costs prevent decentralised markets from quickly and efficiently resolving crises. creditors face incentives to run for the exits at the first sign of trouble and, in doing so, are likely to exacerbate any emerging problem. this makes it difficult to orchestrate outcomes that might better preserve value and facilitate its “ fairer ” distribution. at the national level, insolvency and bankruptcy codes exist which give the courts power to impose restructuring and settlement terms. in eichengreen ’ s view, the absence of an international bankruptcy court with similar powers is a problem. • economic policy is framed in a politicised environment. this is a very simple but important point. it cannot be assumed that regulators and other economic policy makers will carry out their tasks without allowing themselves to be influenced by political considerations. and mostly, national governments will not cede their sovereignty or control of domestic economic affairs to an international body. that is a reality that should influence any thinking on the list of proposals to reform the international financial architecture. pulling all of this together, eichengreen ’ s conclusions are “ … predicated on the notion that international capital mobility is now a financial fact of life, and the problem for policy is ensure that the benefits of capital mobility exceed its costs rather than pretending that it can be made to go away. they are