to take ultimate responsibility for the management of risks. i ’ ll give three brief examples where we ’ ve used the flexibility in global standards to adapt to local conditions. • first, farm lending, and especially dairy farming, accounts for a large share of risks faced by new zealand banks. we ’ ve adapted the basel capital framework to account for the high correlation in bank farm lending losses, and the vulnerability of the new zealand farm sector to shifts in a narrow subset of global commodity prices. bis central bankers ’ speeches • second, our banks have historically relied on short - term funding from offshore counterparties. we developed our bank liquidity requirements ahead of the basel iii requirements, but they achieve very similar outcomes. our mismatch ratios are very similar to the liquidity coverage ratio, and our core funding ratio is similar to the net stable funding ratio. grant spencer, our deputy governor and head of financial stability, will be talking about our liquidity policy during tomorrow ’ s panel discussion. • and third, the leverage ratio we feel is an unnecessary addition to the risk - based basel ii capital regime. our banking system is relatively vanilla and we closely monitor risk weights on key assets. actual leverage is well ahead of the proposed regulatory backstop. concluding comments small countries are not represented in the main basel regulatory committees, the financial stability board, or the membership of the g20. nor do they have global banks. but they do follow the basel debates carefully through their relationships in the regulatory community. they know the issues are complex – be they related to cross - border resolution and too - big - to - fail ; assessing bank capital adequacy and acceptable tolerances for leverage ; or addressing issues around complexity, compliance, and adjustment paths. and they understand the responsibilities all countries carry to close the regulatory net and avoid the regulatory arbitrage opportunities that would otherwise exist. on the regulatory front, large countries associate with many of the smaller countries as home supervisors, regulators of international infrastructures, and participants in peer reviews and other assessments. in these roles, it ’ s helpful if larger countries recognise small country differences, as well as the mandate of small country regulators to protect their national interests. large countries should support the approaches taken by smaller countries to implement reforms – when they support the intended outcomes of global standards, but in ways that may deviate from large country norms in order to meet local country conditions. bis central bankers ’ speeches

and competition are the driving forces that propel standards of living progressively higher. the bold, if unintended, experiment in economic and social systems, which began after world war ii in europe, did not come to a full resting place with the fall of the berlin wall in 1989. despite the ebb and flow of governments of differing persuasions, the face of the world economy continues to edge evermore toward free market - oriented societies. it is true in eastern europe, latin america, and asia. even many of the socialistic economies of africa are embracing free market capitalism. the current crisis in east asia is likely to hasten that trend as hard - learned lessons of economic structure lead to significant reform. the economies in crisis did not use central planning of the pervasive soviet union style. they relied on markets in most respects, but they also used elements of central planning in the form of credit allocation, and those elements, in my view, turned out to be their achilles heel. the crises have their roots in the endeavor of some east asian countries to open up their economies to world competition, while still mandating a significant proportion of their output through government directives. it is, of course, possible for a time to clear a market through central planning, albeit at a lower standard of living, by restricting alternatives available to a population as [UNK] the soviet system demonstrated. it is also possible to clear the market through the free play of competitive forces with consumers ’ choices governing what is produced. a market will not readily clear and achieve stability, except by chance, however, if consumers are largely free to choose, but production is set significantly by government directives. for it is only by chance that governments, meaning planning agencies, can successfully gauge the rapidly changing tastes of consumers and evolving technologies of production. it is much too difficult a task. only sophisticated market mechanisms can do that. partial planning of the sort practiced by some east asian countries can look very successful for a time because they started from a low technological base and had sufficient flexibility to allow business units to borrow the more advanced technology of the fully market economies. but there are limits to this process as economies mature. many asian policymakers are learning that government - directed investments, backed by government inducements to banks to finance them, can lead to substantial gains in output for a number of years in economies with low real wages and low productivity ( as it did in the soviet union ). eventually and inevitably, however, such a regime leads to