The New Zealand financial system is exposed to contagion risk from the parent banking systems - all the more so given the strong industry concentration and the dominant position of banks from just one country.
Extensive foreign bank participation in the banking system can also complicate the supervision of banks in the host financial system - particularly if core functionality is outsourced to parent banks. It also complicates the process for dealing with bank crises in ways that adequately meet the needs of the host financial system.