As prudential supervisor of the banks we certainly witnessed some decline in lending standards over this time, and what we considered misplaced exuberance around lending to some sectors, particularly later in the cycle.
However, New Zealand’s conservative application of the regulatory capital regime (under both the original Basel I and the new Basel II frameworks) helped to promote sound risk management and the banks appear to have steered clear of the dubious lending practices evident in parts of the non-bank sector. Nevertheless, one point needs to be made clearly.