Regulation and Governance in the Non-bank Financial Sector
David G. Mayes, guest researcher at ARENA, has published an article in Journal of Banking Regulation. He illustrates the problems with light touch regulation and reliance on good governance to ensure financial stability by providing lessons from New Zealand.
This article uses the example of the collapse of the finance company sector in New Zealand in 2006–2010 to illustrate the problems with light touch regulation and a reliance on good governance to ensure financial stability. It shows two major governance failures, the first in the governance of the sector by the authorities and the second, serious failures in corporate governance by the firms involved. Although a light touch may assist economic development it also increases fragility. New Zealand has now switched to a greater emphasis on regulation and to a better alignment of incentives to ensure good governance. Although other countries might consider implementing aspects of its new bank resolution regime, most are opting for considerably more regulation and compliance costs.
David G. Mayes
Regulation and governance in the non-bank financial sector: Lessons from New Zealand
Journal of Banking Regulation, 12 November 2014