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The paper finds that, given New Zealand’s conservative approach in implementing the Basel II framework, New Zealand banks’ headline capital ratios underestimate their capital strength. A comparison with Canadian, UK and Australian banks highlights the impact of New Zealand’s more conservative approach. Stress tests in the paper show that four large New Zealand banks could withstand sizable stand-alone shocks to their exposure to either residential mortgages (calibrated on the Irish crisis experience) or corporate lending. However, combined shocks to both residential mortgages and corporate lending would put more pressure on the banks’ capital. Given high bank concentration and large offshore wholesale funding needs, the merits of higher minimum capital requirements for systemically important domestic banks could be considered, together with other measures to be implemented.

Banks and banking --- Bank capital --- Capital --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- E-books --- Banks and Banking --- Finance: General --- Industries: Financial Services --- Financial Institutions and Services: General --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Financial services law & regulation --- Capital adequacy requirements --- Residential mortgages --- Basel II --- Loans --- Financial regulation and supervision --- Nonperforming loans --- Asset requirements --- State supervision --- New Zealand

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This Selected Issues paper for the United States discusses the microeconomics of the country—household wealth and savings. Households’ consumption-saving decisions have an important bearing on the U.S. economic outlook. This paper demonstrates how households with consistently lower income, which have shown growth in the years prior to the crisis, experienced larger declines in their saving rates and a larger rise in their indebtedness before the crisis, contributing significantly to the dynamics of the mean saving rate.

Financial crises --- Economic development --- Development, Economic --- Economic growth --- Growth, Economic --- Economic policy --- Economics --- Statics and dynamics (Social sciences) --- Development economics --- Resource curse --- Saving and investment --- Housing --- Taxation --- Tax expenditures --- Foreclosure --- Finance --- E-books --- Labor --- Macroeconomics --- Corporate Taxation --- Industries: Financial Services --- Business Taxes and Subsidies --- Aggregate Factor Income Distribution --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Personal Income and Other Nonbusiness Taxes and Subsidies --- Economic Development: Urban, Rural, Regional, and Transportation Analysis --- Infrastructure --- Corporate & business tax --- Labour --- income economics --- Public finance & taxation --- Corporate income tax --- Income --- Residential mortgages --- Taxes --- National accounts --- Financial institutions --- Corporations --- Labor market --- United States