Freeze affects 10 per cent of NZ financial system

The annual report of the Reserve Bank of New Zealand reminded readers that there's a qualification to the standard rhetoric (including their own) that Australasian banks and financial systems are sound and secure and wonderfully regulated.

There is, RBNZ governor Alan Bollard wrote in the introduction, "a particular vulnerability in countries like Australia and New Zealand with low savings and a high reliance on foreign funding."

The report does not elaborate, and in fairness Bollard's point is consistent with the long-running themes of RBNZ commentary on New Zealand's banking and macroeconomic position.

The RBNZ has also, over the years, tended to be a lot blunter about the likelihood and frequency of banking failures (based on historical experience) than is typically the case in the public position of financial regulators in Australia.

There is also an extra degree of relevance in New Zealand since, by definition, foreign funding includes the funding from the dominant banks sourced through their Australian-headquartered owners.

The RBNZ report also includes another detail of interest. In noting that in aggregate NZ$5 billion of investor funds in finance companies and mortgage trusts is frozen, the annual report points out "institutions not affected by these current events account for almost 90 per cent of the funds in the financial system".

In other words, 10 per cent of funds in the financial system are affected, which might be a greater percentage than many realised.

More than two dozen finance companies have failed in New Zealand since the local variant of the worldwide credit crisis took hold through the failure of a small financier of second-hand cars two-and-a-half years ago.

The list of delinquent institutions compiled by Interest.co.nz features more than 60 stressed financiers and funds.