Download P r e - 2 0 0 7

RBNZ TAKES ACTION
HOW NEW ZEALAND
MANUFACTURING ECONOMIES PLUMMET
10
8
6
20
%
5
GDP %
30
TAIWAN
KOREA
4
JAPAN
0
10
2
FINANCIAL ECONOMIES FALL
us subprime HOUSING crisis
6
210
200
100
GDP %
index
170
60
160
140
130
6
04
05 06
Year
07
08
09
lower
INTEREST
MARGINS
07
0
09
08
01
02
03
04
05
06
07
08
09
Asian and European manufacturers as their consumer
The Reserve Bank cuts the OCR from 8.25% to
markets shrink.
2.5%, widens the range of securities that banks can
borrow on, expanding its balance sheet significantly.
10
Year
CREDIT GROWTH IN AUSTRALASIA
NEW ZEALAND ECONOMY CONTRACTS
… BUT FORECAST TO RECOVER
4
3
20
20
Financial market stress hits housing, consumption and
production in major financial economies in US and
2
15
15
Europe.
1
2
10
5
0
key
1. Bear Stearns announces major losses for two sub-prime
backed hedge funds
2. BNP Paribas sub-prime funds frozen
3. Bear Stearns acquired by JP Morgan with US Fed assistance
4. Lehman Brothers files for bankruptcy
5. US Congress passes Troubled Asset Relief Program (TARP)
6. US sharemarket reaches low and starts subsequent rally
SPREAD BETWEEN 3-MONTH INTERBANK
RATES AND POLICY RATE EXPECTATIONS
Major investors suffer losses, become more wary of
-1
5
Sep 09
May 09
Jan 07
09
08
07
07
06
05
%
UK
NZ
US
05
04
key
06
OCR (LHS)
RBNZ TOTAL ASSETS (RHS)
10
03
sharemarkets crashing.
banking strains, combined with worsening economic
05
Year
%
outlook, send property/commodity prices and
liquid
markets,
LOWER
INTEREST
MARGINS
sharemarkets. Large investment banks fail. Global
02
Subprime housing market collapse spills into
04
key
10
5
Jan 09
US financial shares down over 80% (LHS INDEX)
US house prices down over 30% (RHS INDEX)
HIGHER
INTEREST
MARGINS
risk
Illiquid
markets,
higher
INTEREST
MARGINS
Sep 08
key
120
JAN 09
-6
May 08
JAN 08
Year
MONEY MARKETS JAM
Jan 08
0
JAN 07
03
03
The stress then spreads across the world into East
-4
term LENDING markets close
Sep 07
20
02
02
0
-2
150
May 07
40
01
2
180
80
01
-10
4
190
0
GDP %
120
-5
$NZ billions
W E AT H E R e d T H E S T O R M
40
10
0
01
02
03
04
05
06
07
08
-1
-5
09
-2
key
AUSTRALIA
NEW ZEALAND
risk, uncertain about which institutions to trust and
in short-term money markets.
01
02
03
04
PRIVATE SECTOR CREDIT
ANNUAL GROWTH
The squeeze spreads to credit for more than one-year
reduce their lending to business and household
lending terms and market interest rates soar.
sectors. Credit growth in NZ has to date not slowed
05
06
Year
07
08
09
Commodity economies like New Zealand’s are initially
Tighter credit conditions means Australasian banks
reluctant to lend, resulting in a cash (liquidity) squeeze
0
more sheltered, but a world event of this magnitude
had to hit us too.
as much as in some other countries.
I nternational
N ew Z ealand
Pre-2007
2007
THE SEEDS
THE CRISIS EMERGES
NORTHERN ROCK COLLAPSES
CONCERNS DEEPEN
April – August
September
December
House prices fall, interest rates rise, people
cannot repay mortgages. Subprime lenders
collapse. Losses make banks wary of
lending to each other. Major central banks
inject cash into the banking system and cut
interest rates.
Northern Rock fails because of its
dependence on wholesale money
market funding (80%), leading to a
retail depositors’ run on the bank.
UK Government guarantees Northern
Rock deposits.
Major central banks offer billions
of dollars in loans to banks. Bond
insurers’ credit ratings downgraded.
US banks give high-risk loans to people
with poor credit histories (subprime).
Loans are bundled into portfolios and sold
to investors globally.
RBNZ accepts bank bills/bonds as security
for lending to ensure banks have cash.
2008
2009
EYE OF THE STORM
AUTHORITIES STEP UP RESPONSE
FROM CRISIS TO RECESSION
UNHAPPY NEW YEAR
SPENDING PACKAGES
MIXED OUTLOOK
January – September
September
October
November – December
January
February – April
May – June
Global stock markets’ biggest
falls since 9/11. US Fed’s biggest
interest rate cut in 25 years. UK,
European banks try raising additional
shareholder capital to cover losses.
US unemployment 6.1%. Fannie
Mae, Freddie Mac rescued by US
Government. Lehman Brothers
collapses – lack of government
intervention shocks world markets.
UK, US apply quantitative easing measures to stabilise
financial systems and encourage lending. US passes $700bn
rescue plan. UK Financial Services Authority increases deposit
guarantee. European, UK bank bailouts. Countries around
the world guarantee retail deposits, including Australia.
Major central banks make emergency interest rate cuts.
IMF loans to Ukraine, Iceland. China stimulus package.
Eurozone, US in recession. Recovery measures in UK, US,
Europe. US plans to help Big Three US car makers.
US interest rates cut to 0-0.25%.
US jobless rate 7.2%. Chinese exports
suffer biggest fall in decade. German
stimulus package. UK government
loan guarantees for SMEs. UK in
recession.
US $787bn economic stimulus plan
signed. G20 agree $1.1 trillion
measures. Total financial sector
writedowns forecast at $4 trillion.
Chrysler files for bankruptcy
protection. Ten big US banks fail
stress tests, need capital. Carmaker
GM bankrupt. UK unemployment
7.1%. Growth forecasts for
some countries revised up as
indicators stabilise.
Ten of largest US banks say able
to repay government (TARP) loans.
Japanese economy experiences
record decline in first quarter 2009
– minus 14.2% on annualised basis.
Wide range of liquidity measures
announced by RBNZ to ensure banking
system has cash. OCR cut to 8%.
OCR cut to 7.5%.
Crown Deposit Guarantee Scheme established. RBNZ allows
residential mortgage-backed securities as collateral to ensure
banks have cash. Retail deposit guarantee scheme launched.
OCR cut to 6.5%.
Crown Wholesale Guarantee facility launched. RBNZ
provides term auction lending facility and allows corporate
and asset-backed securities to be eligible for lending to
ensure banks have ongoing access to cash. OCR cut to 5%.
Corporate and asset-backed securities Further cuts to OCR take it
eligible to ensure banks have access
to 2.5%.
to cash. OCR cut to 3.5%.
RBNZ releases prudential policy
aimed at reducing dependence
on short-term wholesale money
market funding.
NZ economy likely to sustain several
quarters of economic contraction,
but decline is relatively muted
compared with other countries.
Bank takeovers and nationalisation in
the US, UK, France. US Fed’s $85bn
rescue package for biggest insurance
company, AIG.
US House of Representatives rejection
of $700bn Troubled Asset Relief
Program (TARP) to buy bad debts
from ailing banks sends further
shockwaves around the world. Ireland
guarantees bank deposits.
RBNZ TAKES ACTION
HOW NEW ZEALAND
MANUFACTURING ECONOMIES PLUMMET
10
8
6
20
%
5
GDP %
30
TAIWAN
KOREA
4
JAPAN
0
10
2
FINANCIAL ECONOMIES FALL
us subprime HOUSING crisis
6
210
200
100
GDP %
index
170
60
160
140
130
6
04
05 06
Year
07
08
09
lower
INTEREST
MARGINS
07
0
09
08
01
02
03
04
05
06
07
08
09
Asian and European manufacturers as their consumer
The Reserve Bank cuts the OCR from 8.25% to
markets shrink.
2.5%, widens the range of securities that banks can
borrow on, expanding its balance sheet significantly.
10
Year
CREDIT GROWTH IN AUSTRALASIA
NEW ZEALAND ECONOMY CONTRACTS
… BUT FORECAST TO RECOVER
4
3
20
20
Financial market stress hits housing, consumption and
production in major financial economies in US and
2
15
15
Europe.
1
2
10
5
0
key
1. Bear Stearns announces major losses for two sub-prime
backed hedge funds
2. BNP Paribas sub-prime funds frozen
3. Bear Stearns acquired by JP Morgan with US Fed assistance
4. Lehman Brothers files for bankruptcy
5. US Congress passes Troubled Asset Relief Program (TARP)
6. US sharemarket reaches low and starts subsequent rally
SPREAD BETWEEN 3-MONTH INTERBANK
RATES AND POLICY RATE EXPECTATIONS
Major investors suffer losses, become more wary of
-1
5
Sep 09
May 09
Jan 07
09
08
07
07
06
05
%
UK
NZ
US
05
04
key
06
OCR (LHS)
RBNZ TOTAL ASSETS (RHS)
10
03
sharemarkets crashing.
banking strains, combined with worsening economic
05
Year
%
outlook, send property/commodity prices and
liquid
markets,
LOWER
INTEREST
MARGINS
sharemarkets. Large investment banks fail. Global
02
Subprime housing market collapse spills into
04
key
10
5
Jan 09
US financial shares down over 80% (LHS INDEX)
US house prices down over 30% (RHS INDEX)
HIGHER
INTEREST
MARGINS
risk
Illiquid
markets,
higher
INTEREST
MARGINS
Sep 08
key
120
JAN 09
-6
May 08
JAN 08
Year
MONEY MARKETS JAM
Jan 08
0
JAN 07
03
03
The stress then spreads across the world into East
-4
term LENDING markets close
Sep 07
20
02
02
0
-2
150
May 07
40
01
2
180
80
01
-10
4
190
0
GDP %
120
-5
$NZ billions
W E AT H E R e d T H E S T O R M
40
10
0
01
02
03
04
05
06
07
08
-1
-5
09
-2
key
AUSTRALIA
NEW ZEALAND
risk, uncertain about which institutions to trust and
in short-term money markets.
01
02
03
04
PRIVATE SECTOR CREDIT
ANNUAL GROWTH
The squeeze spreads to credit for more than one-year
reduce their lending to business and household
lending terms and market interest rates soar.
sectors. Credit growth in NZ has to date not slowed
05
06
Year
07
08
09
Commodity economies like New Zealand’s are initially
Tighter credit conditions means Australasian banks
reluctant to lend, resulting in a cash (liquidity) squeeze
0
more sheltered, but a world event of this magnitude
had to hit us too.
as much as in some other countries.
I nternational
N ew Z ealand
Pre-2007
2007
THE SEEDS
THE CRISIS EMERGES
NORTHERN ROCK COLLAPSES
CONCERNS DEEPEN
April – August
September
December
House prices fall, interest rates rise, people
cannot repay mortgages. Subprime lenders
collapse. Losses make banks wary of
lending to each other. Major central banks
inject cash into the banking system and cut
interest rates.
Northern Rock fails because of its
dependence on wholesale money
market funding (80%), leading to a
retail depositors’ run on the bank.
UK Government guarantees Northern
Rock deposits.
Major central banks offer billions
of dollars in loans to banks. Bond
insurers’ credit ratings downgraded.
US banks give high-risk loans to people
with poor credit histories (subprime).
Loans are bundled into portfolios and sold
to investors globally.
RBNZ accepts bank bills/bonds as security
for lending to ensure banks have cash.
2008
2009
EYE OF THE STORM
AUTHORITIES STEP UP RESPONSE
FROM CRISIS TO RECESSION
UNHAPPY NEW YEAR
SPENDING PACKAGES
MIXED OUTLOOK
January – September
September
October
November – December
January
February – April
May – June
Global stock markets’ biggest
falls since 9/11. US Fed’s biggest
interest rate cut in 25 years. UK,
European banks try raising additional
shareholder capital to cover losses.
US unemployment 6.1%. Fannie
Mae, Freddie Mac rescued by US
Government. Lehman Brothers
collapses – lack of government
intervention shocks world markets.
UK, US apply quantitative easing measures to stabilise
financial systems and encourage lending. US passes $700bn
rescue plan. UK Financial Services Authority increases deposit
guarantee. European, UK bank bailouts. Countries around
the world guarantee retail deposits, including Australia.
Major central banks make emergency interest rate cuts.
IMF loans to Ukraine, Iceland. China stimulus package.
Eurozone, US in recession. Recovery measures in UK, US,
Europe. US plans to help Big Three US car makers.
US interest rates cut to 0-0.25%.
US jobless rate 7.2%. Chinese exports
suffer biggest fall in decade. German
stimulus package. UK government
loan guarantees for SMEs. UK in
recession.
US $787bn economic stimulus plan
signed. G20 agree $1.1 trillion
measures. Total financial sector
writedowns forecast at $4 trillion.
Chrysler files for bankruptcy
protection. Ten big US banks fail
stress tests, need capital. Carmaker
GM bankrupt. UK unemployment
7.1%. Growth forecasts for
some countries revised up as
indicators stabilise.
Ten of largest US banks say able
to repay government (TARP) loans.
Japanese economy experiences
record decline in first quarter 2009
– minus 14.2% on annualised basis.
Wide range of liquidity measures
announced by RBNZ to ensure banking
system has cash. OCR cut to 8%.
OCR cut to 7.5%.
Crown Deposit Guarantee Scheme established. RBNZ allows
residential mortgage-backed securities as collateral to ensure
banks have cash. Retail deposit guarantee scheme launched.
OCR cut to 6.5%.
Crown Wholesale Guarantee facility launched. RBNZ
provides term auction lending facility and allows corporate
and asset-backed securities to be eligible for lending to
ensure banks have ongoing access to cash. OCR cut to 5%.
Corporate and asset-backed securities Further cuts to OCR take it
eligible to ensure banks have access
to 2.5%.
to cash. OCR cut to 3.5%.
RBNZ releases prudential policy
aimed at reducing dependence
on short-term wholesale money
market funding.
NZ economy likely to sustain several
quarters of economic contraction,
but decline is relatively muted
compared with other countries.
Bank takeovers and nationalisation in
the US, UK, France. US Fed’s $85bn
rescue package for biggest insurance
company, AIG.
US House of Representatives rejection
of $700bn Troubled Asset Relief
Program (TARP) to buy bad debts
from ailing banks sends further
shockwaves around the world. Ireland
guarantees bank deposits.
RBNZ TAKES ACTION
HOW NEW ZEALAND
MANUFACTURING ECONOMIES PLUMMET
10
8
6
20
%
5
GDP %
30
TAIWAN
KOREA
4
JAPAN
0
10
2
FINANCIAL ECONOMIES FALL
us subprime HOUSING crisis
6
210
200
100
GDP %
index
170
60
160
140
130
6
04
05 06
Year
07
08
09
lower
INTEREST
MARGINS
07
0
09
08
01
02
03
04
05
06
07
08
09
Asian and European manufacturers as their consumer
The Reserve Bank cuts the OCR from 8.25% to
markets shrink.
2.5%, widens the range of securities that banks can
borrow on, expanding its balance sheet significantly.
10
Year
CREDIT GROWTH IN AUSTRALASIA
NEW ZEALAND ECONOMY CONTRACTS
… BUT FORECAST TO RECOVER
4
3
20
20
Financial market stress hits housing, consumption and
production in major financial economies in US and
2
15
15
Europe.
1
2
10
5
0
key
1. Bear Stearns announces major losses for two sub-prime
backed hedge funds
2. BNP Paribas sub-prime funds frozen
3. Bear Stearns acquired by JP Morgan with US Fed assistance
4. Lehman Brothers files for bankruptcy
5. US Congress passes Troubled Asset Relief Program (TARP)
6. US sharemarket reaches low and starts subsequent rally
SPREAD BETWEEN 3-MONTH INTERBANK
RATES AND POLICY RATE EXPECTATIONS
Major investors suffer losses, become more wary of
-1
5
Sep 09
May 09
Jan 07
09
08
07
07
06
05
%
UK
NZ
US
05
04
key
06
OCR (LHS)
RBNZ TOTAL ASSETS (RHS)
10
03
sharemarkets crashing.
banking strains, combined with worsening economic
05
Year
%
outlook, send property/commodity prices and
liquid
markets,
LOWER
INTEREST
MARGINS
sharemarkets. Large investment banks fail. Global
02
Subprime housing market collapse spills into
04
key
10
5
Jan 09
US financial shares down over 80% (LHS INDEX)
US house prices down over 30% (RHS INDEX)
HIGHER
INTEREST
MARGINS
risk
Illiquid
markets,
higher
INTEREST
MARGINS
Sep 08
key
120
JAN 09
-6
May 08
JAN 08
Year
MONEY MARKETS JAM
Jan 08
0
JAN 07
03
03
The stress then spreads across the world into East
-4
term LENDING markets close
Sep 07
20
02
02
0
-2
150
May 07
40
01
2
180
80
01
-10
4
190
0
GDP %
120
-5
$NZ billions
W E AT H E R e d T H E S T O R M
40
10
0
01
02
03
04
05
06
07
08
-1
-5
09
-2
key
AUSTRALIA
NEW ZEALAND
risk, uncertain about which institutions to trust and
in short-term money markets.
01
02
03
04
PRIVATE SECTOR CREDIT
ANNUAL GROWTH
The squeeze spreads to credit for more than one-year
reduce their lending to business and household
lending terms and market interest rates soar.
sectors. Credit growth in NZ has to date not slowed
05
06
Year
07
08
09
Commodity economies like New Zealand’s are initially
Tighter credit conditions means Australasian banks
reluctant to lend, resulting in a cash (liquidity) squeeze
0
more sheltered, but a world event of this magnitude
had to hit us too.
as much as in some other countries.
I nternational
N ew Z ealand
Pre-2007
2007
THE SEEDS
THE CRISIS EMERGES
NORTHERN ROCK COLLAPSES
CONCERNS DEEPEN
April – August
September
December
House prices fall, interest rates rise, people
cannot repay mortgages. Subprime lenders
collapse. Losses make banks wary of
lending to each other. Major central banks
inject cash into the banking system and cut
interest rates.
Northern Rock fails because of its
dependence on wholesale money
market funding (80%), leading to a
retail depositors’ run on the bank.
UK Government guarantees Northern
Rock deposits.
Major central banks offer billions
of dollars in loans to banks. Bond
insurers’ credit ratings downgraded.
US banks give high-risk loans to people
with poor credit histories (subprime).
Loans are bundled into portfolios and sold
to investors globally.
RBNZ accepts bank bills/bonds as security
for lending to ensure banks have cash.
2008
2009
EYE OF THE STORM
AUTHORITIES STEP UP RESPONSE
FROM CRISIS TO RECESSION
UNHAPPY NEW YEAR
SPENDING PACKAGES
MIXED OUTLOOK
January – September
September
October
November – December
January
February – April
May – June
Global stock markets’ biggest
falls since 9/11. US Fed’s biggest
interest rate cut in 25 years. UK,
European banks try raising additional
shareholder capital to cover losses.
US unemployment 6.1%. Fannie
Mae, Freddie Mac rescued by US
Government. Lehman Brothers
collapses – lack of government
intervention shocks world markets.
UK, US apply quantitative easing measures to stabilise
financial systems and encourage lending. US passes $700bn
rescue plan. UK Financial Services Authority increases deposit
guarantee. European, UK bank bailouts. Countries around
the world guarantee retail deposits, including Australia.
Major central banks make emergency interest rate cuts.
IMF loans to Ukraine, Iceland. China stimulus package.
Eurozone, US in recession. Recovery measures in UK, US,
Europe. US plans to help Big Three US car makers.
US interest rates cut to 0-0.25%.
US jobless rate 7.2%. Chinese exports
suffer biggest fall in decade. German
stimulus package. UK government
loan guarantees for SMEs. UK in
recession.
US $787bn economic stimulus plan
signed. G20 agree $1.1 trillion
measures. Total financial sector
writedowns forecast at $4 trillion.
Chrysler files for bankruptcy
protection. Ten big US banks fail
stress tests, need capital. Carmaker
GM bankrupt. UK unemployment
7.1%. Growth forecasts for
some countries revised up as
indicators stabilise.
Ten of largest US banks say able
to repay government (TARP) loans.
Japanese economy experiences
record decline in first quarter 2009
– minus 14.2% on annualised basis.
Wide range of liquidity measures
announced by RBNZ to ensure banking
system has cash. OCR cut to 8%.
OCR cut to 7.5%.
Crown Deposit Guarantee Scheme established. RBNZ allows
residential mortgage-backed securities as collateral to ensure
banks have cash. Retail deposit guarantee scheme launched.
OCR cut to 6.5%.
Crown Wholesale Guarantee facility launched. RBNZ
provides term auction lending facility and allows corporate
and asset-backed securities to be eligible for lending to
ensure banks have ongoing access to cash. OCR cut to 5%.
Corporate and asset-backed securities Further cuts to OCR take it
eligible to ensure banks have access
to 2.5%.
to cash. OCR cut to 3.5%.
RBNZ releases prudential policy
aimed at reducing dependence
on short-term wholesale money
market funding.
NZ economy likely to sustain several
quarters of economic contraction,
but decline is relatively muted
compared with other countries.
Bank takeovers and nationalisation in
the US, UK, France. US Fed’s $85bn
rescue package for biggest insurance
company, AIG.
US House of Representatives rejection
of $700bn Troubled Asset Relief
Program (TARP) to buy bad debts
from ailing banks sends further
shockwaves around the world. Ireland
guarantees bank deposits.
RBNZ TAKES ACTION
HOW NEW ZEALAND
MANUFACTURING ECONOMIES PLUMMET
10
8
6
20
%
5
GDP %
30
TAIWAN
KOREA
4
JAPAN
0
10
2
FINANCIAL ECONOMIES FALL
us subprime HOUSING crisis
6
210
200
100
GDP %
index
170
60
160
140
130
6
04
05 06
Year
07
08
09
lower
INTEREST
MARGINS
07
0
09
08
01
02
03
04
05
06
07
08
09
Asian and European manufacturers as their consumer
The Reserve Bank cuts the OCR from 8.25% to
markets shrink.
2.5%, widens the range of securities that banks can
borrow on, expanding its balance sheet significantly.
10
Year
CREDIT GROWTH IN AUSTRALASIA
NEW ZEALAND ECONOMY CONTRACTS
… BUT FORECAST TO RECOVER
4
3
20
20
Financial market stress hits housing, consumption and
production in major financial economies in US and
2
15
15
Europe.
1
2
10
5
0
key
1. Bear Stearns announces major losses for two sub-prime
backed hedge funds
2. BNP Paribas sub-prime funds frozen
3. Bear Stearns acquired by JP Morgan with US Fed assistance
4. Lehman Brothers files for bankruptcy
5. US Congress passes Troubled Asset Relief Program (TARP)
6. US sharemarket reaches low and starts subsequent rally
SPREAD BETWEEN 3-MONTH INTERBANK
RATES AND POLICY RATE EXPECTATIONS
Major investors suffer losses, become more wary of
-1
5
Sep 09
May 09
Jan 07
09
08
07
07
06
05
%
UK
NZ
US
05
04
key
06
OCR (LHS)
RBNZ TOTAL ASSETS (RHS)
10
03
sharemarkets crashing.
banking strains, combined with worsening economic
05
Year
%
outlook, send property/commodity prices and
liquid
markets,
LOWER
INTEREST
MARGINS
sharemarkets. Large investment banks fail. Global
02
Subprime housing market collapse spills into
04
key
10
5
Jan 09
US financial shares down over 80% (LHS INDEX)
US house prices down over 30% (RHS INDEX)
HIGHER
INTEREST
MARGINS
risk
Illiquid
markets,
higher
INTEREST
MARGINS
Sep 08
key
120
JAN 09
-6
May 08
JAN 08
Year
MONEY MARKETS JAM
Jan 08
0
JAN 07
03
03
The stress then spreads across the world into East
-4
term LENDING markets close
Sep 07
20
02
02
0
-2
150
May 07
40
01
2
180
80
01
-10
4
190
0
GDP %
120
-5
$NZ billions
W E AT H E R e d T H E S T O R M
40
10
0
01
02
03
04
05
06
07
08
-1
-5
09
-2
key
AUSTRALIA
NEW ZEALAND
risk, uncertain about which institutions to trust and
in short-term money markets.
01
02
03
04
PRIVATE SECTOR CREDIT
ANNUAL GROWTH
The squeeze spreads to credit for more than one-year
reduce their lending to business and household
lending terms and market interest rates soar.
sectors. Credit growth in NZ has to date not slowed
05
06
Year
07
08
09
Commodity economies like New Zealand’s are initially
Tighter credit conditions means Australasian banks
reluctant to lend, resulting in a cash (liquidity) squeeze
0
more sheltered, but a world event of this magnitude
had to hit us too.
as much as in some other countries.
I nternational
N ew Z ealand
Pre-2007
2007
THE SEEDS
THE CRISIS EMERGES
NORTHERN ROCK COLLAPSES
CONCERNS DEEPEN
April – August
September
December
House prices fall, interest rates rise, people
cannot repay mortgages. Subprime lenders
collapse. Losses make banks wary of
lending to each other. Major central banks
inject cash into the banking system and cut
interest rates.
Northern Rock fails because of its
dependence on wholesale money
market funding (80%), leading to a
retail depositors’ run on the bank.
UK Government guarantees Northern
Rock deposits.
Major central banks offer billions
of dollars in loans to banks. Bond
insurers’ credit ratings downgraded.
US banks give high-risk loans to people
with poor credit histories (subprime).
Loans are bundled into portfolios and sold
to investors globally.
RBNZ accepts bank bills/bonds as security
for lending to ensure banks have cash.
2008
2009
EYE OF THE STORM
AUTHORITIES STEP UP RESPONSE
FROM CRISIS TO RECESSION
UNHAPPY NEW YEAR
SPENDING PACKAGES
MIXED OUTLOOK
January – September
September
October
November – December
January
February – April
May – June
Global stock markets’ biggest
falls since 9/11. US Fed’s biggest
interest rate cut in 25 years. UK,
European banks try raising additional
shareholder capital to cover losses.
US unemployment 6.1%. Fannie
Mae, Freddie Mac rescued by US
Government. Lehman Brothers
collapses – lack of government
intervention shocks world markets.
UK, US apply quantitative easing measures to stabilise
financial systems and encourage lending. US passes $700bn
rescue plan. UK Financial Services Authority increases deposit
guarantee. European, UK bank bailouts. Countries around
the world guarantee retail deposits, including Australia.
Major central banks make emergency interest rate cuts.
IMF loans to Ukraine, Iceland. China stimulus package.
Eurozone, US in recession. Recovery measures in UK, US,
Europe. US plans to help Big Three US car makers.
US interest rates cut to 0-0.25%.
US jobless rate 7.2%. Chinese exports
suffer biggest fall in decade. German
stimulus package. UK government
loan guarantees for SMEs. UK in
recession.
US $787bn economic stimulus plan
signed. G20 agree $1.1 trillion
measures. Total financial sector
writedowns forecast at $4 trillion.
Chrysler files for bankruptcy
protection. Ten big US banks fail
stress tests, need capital. Carmaker
GM bankrupt. UK unemployment
7.1%. Growth forecasts for
some countries revised up as
indicators stabilise.
Ten of largest US banks say able
to repay government (TARP) loans.
Japanese economy experiences
record decline in first quarter 2009
– minus 14.2% on annualised basis.
Wide range of liquidity measures
announced by RBNZ to ensure banking
system has cash. OCR cut to 8%.
OCR cut to 7.5%.
Crown Deposit Guarantee Scheme established. RBNZ allows
residential mortgage-backed securities as collateral to ensure
banks have cash. Retail deposit guarantee scheme launched.
OCR cut to 6.5%.
Crown Wholesale Guarantee facility launched. RBNZ
provides term auction lending facility and allows corporate
and asset-backed securities to be eligible for lending to
ensure banks have ongoing access to cash. OCR cut to 5%.
Corporate and asset-backed securities Further cuts to OCR take it
eligible to ensure banks have access
to 2.5%.
to cash. OCR cut to 3.5%.
RBNZ releases prudential policy
aimed at reducing dependence
on short-term wholesale money
market funding.
NZ economy likely to sustain several
quarters of economic contraction,
but decline is relatively muted
compared with other countries.
Bank takeovers and nationalisation in
the US, UK, France. US Fed’s $85bn
rescue package for biggest insurance
company, AIG.
US House of Representatives rejection
of $700bn Troubled Asset Relief
Program (TARP) to buy bad debts
from ailing banks sends further
shockwaves around the world. Ireland
guarantees bank deposits.