the number of properties. we note there are some complex issues around the use of constant or current prices here. the lack of quality adjustment leads to an understatement of gdp. if we assume a similar growth path to australia for new zealand, we estimate the approximate ballpark for gdp could be 1. 5 percent higher. 5. new standards for measuring the economy statistical frameworks, like the sna, must be updated and revised to ensure that the statistics produced remain relevant and fit for use by policy and decision makers. however, with change comes a comparison issue, as countries progressively move to new standards. the international standard for sna was revised in 2008 and a number of conceptual changes were introduced. one of these changes was the move to capitalise research and development, which had previously been treated as an expense. this change means that research and development activity now counts as investment and adds to gdp, rather than subtracts from it. quality adjustment is also common practice in other countries. bis central bankers ’ speeches in 2009 australia implemented a number of new standards and classifications into its production of macroeconomic statistics, including the 2008 version of sna. in this, australia made changes earlier than any other country did. these changes resulted in significant revisions to national accounts and balance of payments statistics. the table below quantifies the revisions made to nominal gdp estimates. in the year ended june 2008 gdp estimated using the new version of sna ( and making adjustments to employment income ) was 4. 4 percent, or $ 50b aud higher, than the older version. bis central bankers ’ speeches the revision upwards of australian gdp results in an even wider gap between new zealand and australia gdp per capita measures. however, new zealand and australia, while still producing gdp estimates, are now producing these statistics on a different conceptual basis. they are no longer directly comparable. statistics nz plan to introduce sna 2008 in 2013 – 14. this is similar timing to other countries around the world. it is difficult to estimate the impact that new international standards will have on new zealand ’ s national accounts and gdp. we estimate approximately a 3 percent increase in gdp. 6. reconciling different measures of gdp a country ’ s gdp can be estimated three ways, using the production method, the income method, or the expenditure method. conceptually the three measures provide equal results. however, in practice, due to differing data sources and imperfect methodologies, this is rarely the case. statisticians use

have got to. our assessment is that we can improve the soundness of the new zealand banking system with additional capital with no trade - off to efficiency. in making this assessment, our recent work makes the explicit assumption that new zealand is not prepared to tolerate a system - wide banking crisis more than once every 200 years. we have calibrated our ‘ sweet spot ’ thinking about economic ‘ output ’ and financial stability benefits. how did we arrive at this position? current levels of capital are based on international standards, and are not optimal for any one country. the standards are also a minimum. there is a clear expectation that individual countries tailor the standards to their financial system ’ s needs. banks also hold more capital than their regulatory minimums, to achieve a credit rating to do business. the ratings agencies are fallible however, given they operate with as much ‘ art ’ as ‘ science ’. bank failures also happen more often and be more devastating than bank owners – and credit ratings agencies – tend to remember. the costs are spread across the public and through time. many large banks are foreign owned – especially in new zealand. their ‘ parents ’ are subject to capital requirements in their home and host country. this creates continuous tension as to who gets the lion ’ s share of capital and failure management support. it would be naive to expect a foreign taxpayer to bail out a domestic banking crisis. hence, new zealand needs to assess its own risk tolerance, and decide who pays to clean up any mess and the scale of that mess. a word of caution. output or gdp are glib proxies for economic wellbeing – the end goal of our economic policy purpose. when confronted with widespread unemployment, falling wages, collapsing house prices, and many other manifestations of a banking crisis, wellbeing is threatened. much recent literature suggests a loss of confidence is one cause ref # 7821869 v2. 0 of societal ills such as poor mental and physical health, and a loss of social cohesion. if we believe we can tolerate bank system failures more frequently than once - every - 200 years, then this must be an explicit decision made with full understanding of the consequences. table 1 : the reserve bank ’ s tool kit rbnz tools institutional rules transparency financial requirements funding & liquidity self market regulatory permanent governance risk management attestations licensing & nz incorporation outsourcing disclosure minimum capital requirements / solvency standards conservation & counter cyclical buffers sectoral capital requirements core funding