Although the new supervisory framework places great emphasis on the role that market disciplines can play in promoting systemic stability, it is important to note that the Reserve Bank of New Zealand has not abandoned its responsibilities for the financial system. We recognise that, for the time being at least, systemic stability is best served by a combination of market disciplines and banking supervision.
But, clearly, much of the subprime lending that took place during the latter stages of the credit boom in 2005 and 2006 was done very poorly. A third longer-term factor contributing to recent financial and economic developments is the unprecedented growth in developing and emerging market economies. From the U.S. perspective, this growth has been a double-edged sword.