Ministers banking on joint task force's report

Finance Minister Michael Cullen and Australian Treasurer Peter Costello yesterday took another step towards harmonising transtasman banking regulations.

After their annual bilateral meeting in Wellington, they announced the establishment of a joint transtasman council on banking supervision.

The council will comprise officials from the two nations' treasuries, reserve banks and the Australian Prudential Regulation Authority (APRA). It will report to the two ministers by May 31 on any potential legislative changes necessary to enable APRA and the New Zealand Reserve Bank to support each other at least cost.

The two governments have been considering harmonisation of banking regulation since introducing a single economic market agenda last year. Australian-owned banks hold more than 85 per cent of New Zealand banking assets.

Costello said options were one set of rules, two regulators or one set of rules and one regulator. The latter would have uniform depositor protection.

"They're the two options I see and we've got to keep both of them open," Costello said.

The Reserve Bank forced Westpac to incorporate in New Zealand late last year rather than allowing it to operate here as a "buttressed branch" of its Australian parent, primarily because it was concerned about protection of deposits.

Cullen said overly prescriptive regulation was not desirable. The rules enforced by APRA are viewed as more prescriptive than those enforced by the Reserve Bank here.

ASB managing director Hugh Burrett recently told the Herald APRA's controls were "cumbersome" on business and did not necessarily add value.

Treasury and Reserve Bank papers released last month showed Cullen agreeing with officials' advice that adopting Australian banking regulation might not be in the national interest and could reduce the tax base.

Yesterday, he said a single transtasman banking regulator would not necessarily lead to New Zealand losing jobs and tax income to Australia.