Indeed, indicators of market structure such as measures of concentration are not regarded as a very accurate measure of competition. In principle, four large banks could still compete very actively among themselves. So if you have a concern that competition could lead to financial instability, having a concentrated system will not necessarily address the issue. Second, competition tends to be pro-cyclical.
Nor are they easily handled with the limited resources of a small Central Bank. Such an approach has however been consistent with maintaining recognition of the New Zealand regulatory regime by international investors and rating agencies. The IMF takes the view that our framework needs to be brought more into line with the international orthodoxy.