As noted earlier, if a deep financial crisis arises, the Bank may incur credit risk through its lender-of-last-resort responsibilities, albeit lending is not expected to be contemplated without appropriate collateral arrangements. This risk is not incorporated in our economic capital modelling.
The final, minor, element of our capital adequacy requirement is the buffer held for potential operational risks such as misconduct, property loss, systems failures, contractual disputes, etc. Perhaps the largest operational risks arise from the Bank’s responsibilities as the operator of New Zealand’s interbank payment and settlement system, and as the current owner and operator of the securities settlement system.