Buck still stops at bank, says Bollard

The new Trans-Tasman Council on Banking Supervision would not detract from the Reserve Bank's responsibilities, Governor Alan Bollard said yesterday.

The council, which meets for the first time next week, is seen by Australian Treasurer Peter Costello as a forerunner to a single joint Australasian bank regulator.

He and New Zealand Finance Minister Michael Cullen announced the council's formation after their talks last month.

However, Bollard told the Australian Institute of Banking and Finance here a key goal for the council would be to promote "the maximum co-ordination, co-operation and harmonisation of transtasman bank regulation where sensible, so as to best minimise compliance costs".

The Reserve Bank would be represented on the council and was optimistic about the opportunities the council and further harmonisation might offer.

"However, the council is not based on statute and does not derogate in any way the Reserve Bank's responsibilities.

"We continue to maintain and develop the capacity to preserve New Zealand's systemic financial interests. This includes developing crisis management capabilities and ensuring that there exists the legal and practical ability to operate a failed bank if necessary via our local incorporation and proposed outsourcing policies."

Bollard said the strong presence of foreign banks had brought many benefits to New Zealand, but the country's indebtedness and heavy reliance on the bank system as its gateway to global capital brought potential vulnerability.

"New Zealand is exposed to potential shocks within the domestic banking system and New Zealand economy, and also in other countries, especially Australia, that can be channelled through the banking system.

"Since national interests will not always be aligned in times of financial stress, it is important that the New Zealand authorities have a range of options that prevent a wider systemic crisis. That is why we continue to maintain and develop this capacity."

- NZPA