KEY POINTS:
National leader John Key took a calculated risk by going public on Sunday over behind-the-scenes moves to negotiate a wholesale banking guarantee.
A successful resolution to the issue is critical for offshore confidence in New Zealand banks.
Key wants negotiations to proceed with urgency to avert a deepening of the credit crunch by Christmas.
But the fact he's been working the phones to try to get a handle on the matter met with the Prime Minister's disapproval.
Helen Clark was at her lip-curling best when she dismissed a journalist's question at her post-Cabinet press conference on whether she - like Key - had been talking to the banking bosses on the issue.
"Most certainly not. I'm the Prime Minister. I'm the leader.
"I'm not the Minister of Finance. There is a distinction in roles."
There certainly is a distinction.
But you could hardly blame Key - a politician who is still odds on to get the first chance at forming a Government after the November 8 election - for seeking direct answers from the banking bosses themselves after he was blindsided by not being informed ahead of Clark's campaign launch announcement that the NZ Government was to guarantee retail deposits.
Across the ditch, Australian Prime Minister Kevin Rudd has no qualms in calling in top bankers for a glass of wine and a quiet chat about the major issues facing the Australian banking sector over the credit crunch.
British Prime Minister Gordon Brown - a former UK Chancellor of the Exchequer - put together a bailout package for major banks with some behind-the-scenes help Standard Chartered gave the UK Treasury.
Brown and Rudd may well view "bankers as bastards" but they're sharp enough to drill hard and assure themselves they are on the right track before committing their own governments to the rescue party.
Finance Minister Michael Cullen has since been keeping National's finance spokesperson Bill English in the loop. English told me the information flow has stepped up considerably since public light was shed on the scale of the problem on Saturday.
Both he and Key now feel more comfortable talking publicly about their perspectives. They are not breaching any confidences.
Cullen handed English a new paper dealing with the guarantees after they both took part in Radio New Zealand's economic debate on Sunday night. The paper flow has continued.
Bank chiefs were given a heads-up on the Reserve Bank's thinking on Friday afternoon. A teleconference is sketched in for today.
There are thorny issues involved here.
First-up: Whether Cullen should indeed be using his powers under the Public Finance Act to sign off the prospective wholesale guarantee as the serving Minister of Finance. Or, whether any guarantee signed off by Labour (Cullen) should be accompanied by a bipartisan agreement stating it would be upheld by an incoming Government (if Labour loses).
This is important as the election date is less than three weeks away and there is a strong potential - given the Maori Party's signal it will hold a series of nationwide huis before deciding its post-election stance - that a Government will not be in place until late November at the earliest.
A quick look back at the history books would suggest bipartisanship is the best option for New Zealand in financial turmoil.
There are two prior times the New Zealand election has straddled a major financial crisis in the past 25 years.
In 1984, New Zealand was black-balled when Treasury officials sought major Government funding offshore ahead of the election. The Prime Minister and Finance Minister Sir Robert Muldoon ignored Reserve Bank advice to devalue the NZ dollar.
Word inevitably leaked out (some placed via a policy paper recommending devaluation ascribed to Labour's finance spokesman Sir Roger Douglas) but Sir Robert stayed resolute exacerbating capital flight from NZ.
It took the intervention of his own senior ministers after the election to force Sir Robert to carry out the incoming Labour Government's wishes and order a devaluation.
The current circumstances are not directly analogous with the devaluation crisis. But it serves as a reminder why National is determined that any guarantee agreement signed up to by Cullen must be bipartisan.
In 1990, the then Labour Government held off on bailing out the Bank of New Zealand before the election.
Labour later said the election was simply too close to make a costly bailout that would bind the next government - of whichever stripe. In fact it would have been less costly to the country's reputation if the bailout had taken place before the election.
But in 1990 - when Clark was Deputy Prime Minister - Labour's judgment call was not to bind the succeeding government.
Given the background, Key and English should stick to their guns and insist on full consultations (not merely briefings) on the wholesale deposits guarantee and a bipartisan result.
The second issue is risk management.
The problem New Zealand faces in dealing with negotiating a wholesale guarantee is 85 per cent of the banking system is controlled via Australia. The potential is that the shareholders in the Australian banks could get a free ride at the NZ taxpayers' expense.
There's been plenty of Aussie-bank bashing on this score since discussions became public. But politicians need to take on board that their own prior decisions exacerbated the risks. The previous National Government forced the sale of BNZ to the National Australia Bank against huge uproar from New Zealanders. ANZ was given approval to buy National Bank (previously British-owned) by the current Government.
In effect, New Zealand has surrendered too much local ownership instead of taking appropriate policy steps to encourage domestic savings and deepening local capital markets.
One suggestion floated behind the scenes yesterday (nb: Reserve Bank - not by the trading banks) was that the Government should demand a quid pro quo for the upcoming guarantee. This could be by way of insisting the Australian banks float a portion of their shares in New Zealand to ensure more domestic ownership here. Westpac suggested a variant earlier this year.
But for the proposal to fly, cross border tax issues would need to be addressed - particularly dividend imputation credits.
In the long term officials will also have to consider how to incentivise the banks so they ultimately come off the public teat.
The Reserve Bank and Treasury will be keeping a weather eye out for an expected announcement (potentially as early as today) from Australia which is expected to detail further conditions over the Government guarantee which has already been made on wholesale funding.
The Australian newspaper reports that the Rudd Government is working out what to do with its "promise to rent its triple-A credit rating to banks unable to access offshore wholesale funding markets ... "
At issue is whether to charge penalty rates so banks pay about 120 basis points over market rate for their money: too high a figure for the High Street banks and not enough for those with lower credit ratings.
Officials here are also exploring the options.
NZ Treasury is understood to be talking directly with the Australian Treasury on options.
The Reserve Bank has some short-term mechanisms to stop the ready flow of lending drying up. It can buy securitised mortgages from the banks.
The Government - via its Aussie counterparts - could also approach Australia's regulatory authority to see if rules limiting the Australian banks lending to their New Zealand subsidiaries could be relaxed in return for the New Zealand Government guarantee.
It is undoubtedly complex - but NZ does need to move as quickly as possible.
Australia already has its guarantee in place. South Korea unveiled its own US$100 billion guarantee on Monday - a signal that it intends to shore itself up further.
NZ cannot be left out of the game.
