KEY POINTS:
Financial stability could be classed as an oxymoron in light of current events but New Zealand's Reserve Bank does its best to justify the term.
In its recently published 'Financial Stability Report', as calmly as it can, steps away from the daily hysteria
of screaming headlines (today's sample: 'US rescues Citigroup with $37b') and tries to look through to more settled times.
Everyone should read the report. It's not too technical, it has some nice graphs and, in reasonably plain language, spells out the country's state of affairs.
And, considering the chaos, we're doing alright, according to Reserve Bank chief, Alan Bollard.
Bollard says in the report, assuming all the rescue packages do their trick, "we will eventually reach the point where financial institutions are again able to support global economic growth".
There is a rider, of course: "In the interim, the adjustment process is proving extremely disruptive and it will likely be some time before financial market conditions normalise."
The report even has some cheerful news for mortgage-holders. Most of the lending has been conservative and not too many home-owners are over-extended, the Reserve Bank says.
It also highlights the fact that only 35 per cent of New Zealanders have mortgages - think about that next time you see news stories featuring struggling homebuyers and rising interest rates (which, admittedly, shouldn't be for a while).
The Bank also looks forward to a time when investors will make more rational decisions about finance company investments. While the deposit guarantee scheme might distort the market for a year or two, eventually "the accelerated regulatory changes for the non-bank deposit taking sector... coupled with heightened scrutiny on the part of investors, are expected to prompt further increases in differentiation between relatively secure versus relatively untested institutions".
Mandatory credit ratings for finance companies should also help investors decide "what sort of additional premium might be fair compensation for the risk inherent in a lower rated institution".
In a further bout of optimism the Reserve Bank predicts that "sounder and more transparent funding structures" could help us avoid "the boom-bust nature of the current property cycle".
Just what we need: a financial report with a happy ending.
David Chaplin
Photo/ Mark Mitchell.