Alan Bollard

New Zealand and Australia continue to learn valuable lessons from the global financial crisis, despite escaping the turmoil relatively lightly, Reserve Bank Governor Alan Bollard said today.

Delivering the Sir Leslie Melville Lecture at the Australian National University in Canberra, Dr Bollard said the crisis challenged many countries on a number of fronts. The experience of major financial system convulsions, followed by global recession and the emergence of the euro area sovereign debt crisis, provoked economic researchers and forecasters to reassess what is known and where research should focus.

One lesson from the crisis was the interconnectedness of financial institutions - both domestically and globally.

Lessons were also learnt about how quickly systemic financial stress in major countries could spread and create strong recessionary conditions around the world.

Dr Bollard said the crisis also challenged financial regulators and monetary and fiscal policy makers, who are still working to "understand, contain and repair the damage to financial systems, to economies and to governments' financial capacity."

Fortunately, New Zealand and Australia escaped the worst of the financial crisis. However, extraordinary policy action by central banks and governments was needed at various times, he said.

Legacy issues remain to be dealt with, such as still-elevated levels of household debt. Small open economies are also experiencing spillovers into capital flows and exchange rate pressures from unconventional monetary policy actions by major central banks, and this is problematic for New Zealand.

Dr Bollard said it is unrealistic to try to reduce the risk of a systemic crisis to zero.

"Part of the strengthening of the financial system overall must therefore include practical preparation for further crises, as well as regulation and supervision with an eye to ensuring that a crisis can be dealt with effectively should it eventuate."