Bank owners go on offensive

The Australian owners of New Zealand's big banks yesterday hit back at Reserve Bank proposals to stop their subsidiaries here from moving key functions overseas.

The Australian Bankers' Association released a Boston Consulting Group opinion claiming the proposals could cost them A$200 million to A$300 million ($217 million to $326 million) a year in lost efficiencies.

The opinion also claims the draft policy would "affect the efficiency of the New Zealand banking system, limit the range and sophistication of the products and services offered, and increase prices to customers".

However, Massey University director of banking studies David Tripe said the estimate seemed "unbelievable" - far too high as a proportion of the banks' $3 billion of annual operating costs.

"The argument they put forward in relation to economies of scale bears no relationship to any academic literature that I'm aware of."

He said the document also contained factual errors.

The bankers' association released the opinion - part of its February 28 submission on the proposals - after a journalist requested the material from the Reserve Bank under the Official Information Act.

The submission also said the draft policy should be considered in the context of the new Transtasman Council on Banking Supervision - not as a separate Reserve Bank initiative.

The Reserve Bank would not comment last night.

One aim of the proposals unveiled last November is to make sure "systemically important" banks - the ones that hurt the economy if they fail - do not outsource key functions.

For example, the Reserve Bank would not want an overseas owner to process a New Zealand subsidiary's transactions if that meant the local bank could not function if the parent failed.

New Zealand's four big banks - ASB, ANZ National, Westpac and BNZ - are Australian-owned.

The Boston Consulting Group opinion says the proposals will impose a range of direct costs on the banking system, including:

* Reduced economies of scale.

* A higher cost of capital - since bank parents will charge subsidiaries more for money if they lack direct control.

* Slower development of products.

It says the "substantial but less direct" costs would include:

* Extra risks for the banking system from lowering the ability of parent institutions to supervise operations and intervene.

* The signal to foreign investors that New Zealand limits direct control of subsidiaries "in a way not experienced in other economies".

The issue

* "Outsourcing" by banks includes IT processing, accounting and call centres.
* The Reserve Bank wants to limit outsourcing by the country's big banks - BNZ, ASB, ANZ National and Westpac.
* It wants to protect the economy by ensuring they can function even if their Australian parents fail
Source: Reserve Bank statement