Banks in New Zealand have been given a kind of insurance policy in the event the international credit crisis worsens.
The Reserve Bank has announced special measures to ensure the banking system has enough liquidity.
The measures include expanding the range of acceptable securities for borrowing from the bank.
This brings the Reserve Bank into line with other central banks.
The Reserve Bank is urging banks to lengthen the maturity structure of their debts and is expanding the range of acceptable securities for the domestic market which will include residential mortgages.
Bank Deputy Governor Grant Spencer says banks need to be cautious in their lending whilst the current climate exists. He says they should not put up the lending shutters, saying if they over react then it could add to the downturn.
"We are confident the banking system can cope with current conditions, but we are taking steps to ensure it can handle any unforeseen pressure in the current uncertain environment," Spencer says.
"These measures will further enhance liquidity in the banking system following initial measures introduced in September last year."
Spencer stresses the liquidity measures have no implications for
the bank's stance on interest rates.
