Cullen wary of banking accord

Finance Minister Michael Cullen has baulked at calls for New Zealand to adopt Australian banking regulation, accepting official advice that such a move would not be in the national interest and could reduce the tax base.

Cullen's views were disclosed in a swathe of documents released yesterday by the Reserve Bank.

The Treasury-Reserve Bank papers responded to a July report on closer integration of transtasman banking regulation.

The report was jointly prepared by New Zealand and Australian officials and was part of the two Governments' moves to more closely align transtasman business laws.

The report looked at either allowing the Australian Prudential Regulatory Authority (APRA) to supervise Australian banks operating in New Zealand or keeping separate regulatory regimes but harmonising banking regulation where appropriate, sharing information and improving co-ordination.

Australian-owned banks - ANZ National Bank, Westpac, ASB and BNZ - hold 87.5 per cent of New Zealand's banking assets.

Australia separates the roles of its central bank and bank watchdog between the Reserve Bank of Australia and APRA. In New Zealand, the Reserve Bank does both jobs.

The National Party came out in support of APRA taking over the role of New Zealand banking watchdog last October but Cullen said this would see New Zealand giving up decision rights over policy affecting its biggest banks.

It could also create a "non-level" playing field for New Zealand-owned banks such as the Government-owned Kiwibank.

But Cullen has established a working group of officials to give him a "clear steer" on the desirability of further integrating transtasman banking regulation.

A report is due before his annual bilateral meeting with Australian Treasurer Peter Costello next month.

Treasury and the Reserve Bank say any efficiency gains from APRA supervising banks operating in New Zealand would be small relative to wider economic and financial stability issues for the country.

Moving banking functionality and income to Australia could reduce the New Zealand tax base.

And more movement abroad of management and technical expertise could adversely affect the provision of financial services, they say.

Australian officials' offers to protect Kiwi interests include adding New Zealand representatives to the Australian Council of Financial Regulators and making APRA report to New Zealand's Parliament.

But Cullen said APRA would lack real accountability because as Finance Minister he would have no power of direction.