11 August 2004

Supervision of overseas-owned banks essential

The Reserve Bank of New Zealand has told an Australian business audience that even with all the main banks in New Zealand being overseas-owned, the Reserve Bank still needs to be vigilant about its banking supervision role.

Speaking at the Trans-Tasman Business Circle in Sydney, Reserve Bank Governor Alan Bollard said the Reserve Bank is "seeking to reinvigorate the regulatory arrangements for New Zealand's banking system."

Dr Bollard said that "while almost all the banks in New Zealand are overseas-owned, the banking system as a whole must still meet New Zealand's needs - in fair weather and foul".

Dr Bollard said "It is essential that the New Zealand authorities can supervise the New Zealand banking system and respond quickly, decisively and effectively to a banking crisis. All countries need to shoulder the responsibility for the sound functioning of their banking systems."

"This is why we have required systemically-important banks in New Zealand to be incorporated locally. And it is why we require these banks to maintain the capacity to function on a stand-alone basis, if required. Without that capacity, there would be a material risk of the banking system becoming dysfunctional in a banking crisis. Avoiding that risk is fundamental to the soundness of the New Zealand financial system."

Dr Bollard also emphasised that in reinvigorating its supervision of banks in New Zealand, the Reserve Bank "will be looking to work more with the Australian Prudential Regulation Authority (APRA) on how best the two organisations can coordinate, both in terms of day-to-day prudential supervision and crisis management."

Dr Bollard noted that "with the New Zealand banking system now comprising predominantly Australian-owned banks, there exists an opportunity to develop arrangements for the supervision of trans-Tasman banks that would be a world-class model of cross-border banking supervision."

ENDS

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