An ongoing driver of financial soundness is the conduct and culture of banks and insurance companies. These features are being jointly reviewed by the Financial Markets Authority and ourselves, and we will report our findings over coming months.The financial system vulnerabilities are much the same as we discussed in our previous Financial Stability Report. Household mortgage debt remains high. However, financial risk has lessened with both lending and house price growth slowing in the last 12 months – in part due to our imposition of loan-to-value (LVR) ratio restrictions. This more subdued lending growth needs to be further sustained before we gain sufficient confidence to again ease the LVR restrictions.In a similar vein, the dairy farming sector remains highly indebted. Most dairy farms are currently cash-flow positive, but remain vulnerable to any possible downturn in dairy prices and agriculture shocks. Reducing this bank lending concentration risk requires more prudent lending practices.The high dairy-farm indebtedness, and the fact that LVRs were necessary, reflects that banks’ allocative efficiency – eg deciding how much to lend to whom – can be impaired due to the pursuit of short-term, rather than longer-term, profits.We have launched the Bank Financial Strength Dashboard to make it easier for financial information to be compared, such as bank capital buffers, non-performing loans, and risk concentration. Our aim is to improve the public’s understanding of their banks, and hence the incentives for banks to operate soundly.The banking sector is broadly efficient, although some lending allocation remains a vulnerability. The major New Zealand banks are in the top quartile of OECD banks for their return on assets. Bank services are also wide ranging and of reasonable cost. These outcomes are possible due in part to the low cost-to-income ratios of our major banks, and the current low level of impaired loans.The insurance sector as a whole also remains sound, profitable and adequately capitalised, once again guided in part by our prudential regulatory requirements. However, some insurers have relatively small capital buffers necessary to meet future events. We are discussing this directly with the insurers.We have sought a court order to put one New Zealand licensed insurance company – CBL Insurance Ltd – into interim liquidation in recent months. There will be a full liquidation hearing in the High Court.There are also challenges to efficiency in the insurance sector. Market share remains concentrated. Life insurance commissions are particularly high, which inevitably flows through into higher premiums. We believe technology developments will be a key driver of competition in the future.