While the supervisory challenges posed by the specific sectors of the financial system may vary, devoting more time to sectors and activities perceived to be of highest risk should be prioritised. Risk-based supervision provides a rigorous framework for assessing and addressing risks and efficient allocation of resources, which can improve the efficiency and effectiveness of all supervision.
Moreover, the degree of support that the major New Zealand banks receive from their Australian parents allows them to maintain lower capital levels than would otherwise be the case to maintain their credit ratings.