Cullen softens bank remark

Finance Minister Michael Cullen yesterday tried to backtrack on comments he made on Thursday suggesting the Reserve Bank could lose its banking supervisory role in moves to harmonise transtasman banking regulation.

Responding to a Business Herald story, Cullen said the Reserve Bank's prudential function was not under threat in the Australian and New Zealand governments' review of banking regulation.

But his statement also said a similar split to Australia, where the Australian Reserve Bank takes charge of monetary policy and the Australian Prudential Regulation Authority (APRA) regulates the financial sector, was "obviously an option" for New Zealand.

Such a split in New Zealand, however, had never been his preference.

At an Institute of Finance Professionals lunch in Wellington on Thursday, Cullen said: "I think we will end up with a single regulator in New Zealand of financial institutions at the prudential level, which may or may not be the Reserve Bank."

The two Governments were in sight of a deal harmonising banking regulations which was likely to see a joint "over-arching" body covering transtasman banking issues working alongside separate prudential regulators in each country, he said.

Meanwhile, David Tripe, senior lecturer in banking studies at Massey University, would not rule out the possibility that Cullen was trying to put the wind up the Reserve Bank by effectively saying: "Do what we say or we might take your banking supervision role away."

Official papers show staunch Reserve Bank opposition to a joint transtasman regulator.

Tripe said any new prudential regulator the Government established would be a wonderful gravy train of new jobs.