Joint regulator a bad idea, warns US expert

A single transtasman banking regulator - said to be favoured by Finance Minister Michael Cullen - would be dominated by Australia with New Zealand losing key powers and becoming a financial colony of its neighbour, a United States banking expert says.

Last month, the two countries agreed to establish a council on banking supervision. Australian Treasurer Peter Costello said he would like the move to be a precursor to a single joint Australasian banking regulator.

Cullen has been more circumspect, but leading US financial academic Edward Kane, of Boston College, said the minister's support for a single banking supervisor was an "open secret".

Professor Kane, the 2005 professorial fellow in monetary and financial economics at the Reserve Bank and Victoria University, said New Zealand would lose out if the two countries established a joint banking regulator.

A single regulator was likely to be dominated by Australia whose banks already own 85 per cent of New Zealand banking assets. "Historically there's a danger of regulators being captured by those they regulate. The regulatory culture here in New Zealand is strong on stopping this and, in my assessment, the Australian system is not as strong."

Kane said the two countries had long been "dancing partners" in banking regulation. "Now they've moved to a de facto partnership.

"In a de facto partnership, everything is to be worked out where the issues are control benefits and costs. I think the idea of just ceding control to one partner, and that partner gets to determine the benefits and costs, really wouldn't make sense in one's ordinary life. Why would it make sense at the national level?"

Kane said a picture of what New Zealand stood to lose "needed to be painted in strong terms".

"It goes against the whole theory of Government. It's one thing to be a colony where someone has conquered you and you can't do much about it, but to sort of volunteer for colonial status strikes me as very odd."

The migration of local banking supervision to Australia could also have unintended further consequences, with the local industry having no input into its role in a globalised system if Australian parents were taken over by bigger offshore interests.

- NZPA