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Trans-Tasman banking policy harmonisation

23 March 2005

Enhancing our trans-Tasman banking policy harmonisation

The Reserve Bank today explained that both the high degree of Australian ownership of New Zealand banking assets, as well as increasing international regulatory requirements, have led to moves to increase global banking policy cooperation.

Speaking to the Australian Institute of Banking and Finance, Reserve Bank Governor Alan Bollard outlined that "the Reserve Bank is working with other trans-Tasman agencies to implement the Trans-Tasman Council on Banking Supervision. The Council is intended to promote the maximum coordination, cooperation and harmonisation of trans-Tasman banking regulation where sensible.

"International regulatory demands necessitate close cooperation and coordination between prudential regulators. The recently signed Terms of Engagement between the Reserve Bank and the Australian Prudential Regulation Authority on the implementation of Basel II capital rules provides a significant example of sensible policy coordination. Australian banks in particular have argued hard for a unified approach to the implementation of Basel II and their demands have been met.

"However the Council is not based on statute and so does not derogate in any way the Reserve Bank's responsibilities. We continue to maintain and develop the capacity to preserve New Zealand's systemic financial interests. This includes developing crisis management capabilities, and ensuring that there exists the legal and practical ability to operate a failed bank if necessary via our local incorporation and proposed outsourcing policies.

"The strong presence of foreign banks has brought many benefits to New Zealand. However, New Zealand's indebtedness and heavy reliance on the banking system as its gateway to global capital brings potential vulnerability. New Zealand is exposed to potential shocks within the domestic banking system and New Zealand economy, and also in other countries, especially Australia, that can be channelled through the banking system.

"Since national interests will not always be aligned in times of financial stress, it is important that the New Zealand authorities have a range of options available that can prevent a wider systemic crisis. That is why we continue to maintain and develop this capacity."


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