Governments move closer to joint banking regulation body

Michael Cullen (left) and Peter Costello are expecting reports this month. Picture / Mark Mitchell

The Australian and New Zealand Governments are "within sight" of an agreement on harmonising banking regulation that could see the Reserve Bank stripped of its banking supervisory role, Finance Minister Michael Cullen says.

He told an Institute of Finance Professionals lunch in Wellington yesterday that a joint body covering transtasman banking issues, working alongside separate prudential regulators in each country, was the likely result of ongoing talks.

Australia already has the Australian Prudential Regulation Authority (Apra), the prudential regulator of that country's entire financial services industry. Here, the Reserve Bank supervises banks but the Ministry of Economic Development oversees credit unions, building societies, insurers and finance companies.

Cullen said Australia would retain Apra and "some kind of joint overarching body" would be established to deal with common issues that rose between the two banking markets.

He expects to receive a report from a joint transtasman council of government officials on banking supervision within two weeks. The report will also go to Australian Treasurer Peter Costello, who with Cullen, established the council at their annual bilateral meeting in February.

At that time, Costello outlined the two options he saw: one set of rules, two regulators; or one set of rules and one regulator.

The latter would see the depositor preference provisions of the Australian Banking Act extended to give New Zealanders equal treatment to Australians if an Australian bank failed.

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

The owners recently claimed that Reserve Bank plans to stop them moving key functions such as customer account processing overseas could cost up to A$300 million ($322 million) annually in lost efficiencies.

Cullen said he had been "walking a careful line" on the issue of harmonising banking supervision because, for Australia, it was the most important part of the two Governments' moves towards a single transtasman economic market.

"If we simply say, 'No we're not going to change our banking regulatory system at all' and just tell the Australians to get stuffed, to put it bluntly, we cannot expect Australia to be interested in the rest of the single economic market project," he said.

However, the Government was not interested in simply "buying the Australian model off the shelf" because New Zealand's regulatory model was better in a range of areas.