A heavy reliance on short-term foreign borrowing by the NZ banks meant they were vulnerable to the sort of liquidity shock experienced in late 2008–early 09.
While the banks’ funding shortfall was met through parent funding and the Reserve Bank’s expanded liquidity facilities, the experience underlined the need for banks to lengthen the maturity of their liabilities relative to assets, in order to reduce their vulnerability to such shocks. To address these issues, the Reserve Bank introduced a new prudential liquidity policy for banks in April 2010.