Financial experts say New Zealand banks are well-placed to survive the events of the past week with minimal damage.
Our banks are stronger, better regulated, simpler and cleaner than the US investment institutions that collapsed or were bailed out in the world's biggest financial crisis since the great crash of 1929, they say.
"They have got quite a lot of capital and last year they generated a combined $17 billion of profit, so they have a lot of capacity to absorb losses," said David Tripe, the director of Massey University's Centre for Banking Studies.
"Also, the majority of their business is lending to business people and home owners and that's not such a risky activity."
The nervousness is natural, given that well-known and apparently impregnable institutions such as Lehman Bros, Merrill Lynch and AIG disintegrated in a cloud of toxic debt and investor panic within days.
Analysts and regulators said New Zealand bankers were boring but conservative compared with the "Masters of the Universe" that ran banks in Wall St and Canary Wharf.
These investment bankers in New York and London dreamed up fancy derivatives that few investors understood.
They sliced up bonds into so many slivers that lenders didn't know who they had lent to or over what security. They then insured these bonds so they appeared risk-free.
Reserve Bank Governor Alan Bollard said on Friday that while New Zealand would "inevitably feel the effects of major financial shocks such as this", our banks were not involved in the complex financial transactions that caused significant losses in many of the large global institutions.
The Australian banks that own our main banks will, however, not escape completely unscathed from the credit crunch. They have about $500 million of loans with Lehman Bros and it's not clear how much they have lent to AIG and others that may fall over.
They also face potential losses from the financial problems hitting Australian investment firms Allco, MFS, Babcock and Brown and Centro.
In New Zealand the banks are likely to see some property market loans go bad but analysts said the biggest risks were taken by finance companies and any losses would not reduce reserves much.
Strategic Risk Analysis managing director Rodney Dickens said New Zealand banks appeared to have learned from the painful lessons of the 1987 crash and had not got themselves "massively exposed to the parts of the property market that are currently imploding".
"The most worrying speculative bubbles this time around are not the commercial property market or the housing market, but the apartment market and various bits of the land market, including coastal and resort subdivisions," said the former ASB Group Strategist.
"The banks will have to make some provisions for the property market and for their exposures to Lehman, AIG and others, but the exposures and potential write-offs do not appear to be overly worrying when considered in terms of the size of the balance sheets of the banks."
WHO OWNS WHO
ASB: Owned by Commonwealth Bank of Australia, this Auckland-based AA-rated bank has grown quickly over the past decade and has the highest proportion of mortgages of the major banks. It has $59.35 billion of assets and tier one capital (the safest type) of 9.3 per cent, more than twice the Reserve Bank minimum of 4 per cent.
BNZ: Owned by National Australia Bank, the AA-rated BNZ is one of the more conservative lenders, with $60.24 billion of assets and tier one capital of 7.9 per cent of assets. NAB has already written off much of its exposure to US sub-prime mortgages.
ANZ and The National Bank: Owned by the AA-rated ANZ Banking Group in Australia, the two banks combined are New Zealand's largest, with $114.9 billion in assets and a tier one ratio of 7.7 per cent. ANZ has already increased its provisions for higher bad debts because of a slowdown in the New Zealand and Australian economies.
Westpac: The AA-rated New Zealand arm of the Australian bank has $51 billion of assets and a tier one ratio of 6.5 per cent. Westpac's Australian arm has been least exposed to US sub-prime losses and problem Australian loans.
Kiwibank: The AA-minus-rated bank is part-owned by government-owned NZ Post. It has $7.2 billion of assets and a tier one ratio of 8.3 per cent. NZ Post guarantees deposits in Kiwibank deposits, although it has the right to withdraw the guarantee with three months' notice.
SPOT THE DIFFERENCE
10 reasons why New Zealand's banks and US investment banks are like chalk and cheese.
1 Only 0.12 per cent of New Zealand loans are behind their due date, compared with almost 6 per cent of US home loans.
2 Our banks deal directly with borrowers, whereas US investment banks deal with brokers and other banks. Our banks often know how much a borrower earns and spends every week whereas the end holder of a securitised mortgage would be lucky to know the borrower's name, let alone their income.
3 Kiwis can't walk away from their houses and leave the debt with the house. Homeowners in 20 "non recourse" states are handing their houses to the lender and walking away without debt.
4 New Zealand banks have higher credit ratings than US banks.
5 US investment banks loaned overwhelmingly to other banks and huge corporates. New Zealand banks almost exclusively lend to home owners and businesses. These loans are much easier to understand.
6 US investment bankers would earn 5 to 10 times more than the chief executive of any New Zealand bank.
7 Our banks are regulated by the Reserve Bank.
8 Less than 1.5 per cent of mortgages in New Zealand are near or sub-prime. More than 7 per cent of US mortgages are.
9 Investment banks have already exhausted the supplies of fresh no capital to bolster their balance sheets.
10 New Zealand interest rates have been higher than the US' for eight years, restricting borrowing.