After the National Bank Acquisition: Living with Big Australian Banks: An Excerpt from an Address to the Australasian Institute of Banking and Finance by Dr Alan Bollard, Governor, Reserve Bank of New Zealand 6 November 2003

By Bollard, Alan | The Reserve Bank of New Zealand Bulletin, December 2003 | Go to article overview

After the National Bank Acquisition: Living with Big Australian Banks: An Excerpt from an Address to the Australasian Institute of Banking and Finance by Dr Alan Bollard, Governor, Reserve Bank of New Zealand 6 November 2003


Bollard, Alan, The Reserve Bank of New Zealand Bulletin


Having a banking industry consisting mainly of banks with Australian parentage has many advantages for us. Despite our country's small size, our banking system benefits from the presence of strong, innovative, internationally-connected players that are from a highly-respected country and understand our preferred ways of banking. Of course, from time to time one hears complaints about "branch office" treatment of New Zealand borrowers, but overall on a day-to-day basis banks' customers in New Zealand do well out of the deal. Meantime, the Reserve Bank's main concern remains to regulate for the promotion of a sound and efficient New Zealand financial system, regardless of the fact of its Australian parentage.

The conditions we put on ANZ's acquisition of the National Bank do not signal any radical new approach to banking regulation. However, they do represent ongoing enhancements that we are very serious about and have been working on for some time. These are aimed at ensuring that local boards have effective operational reach over core assets and people, and that lines of responsibility and accountability are clear. We have been able to effect these conditions due to the new powers put in place by the Reserve Bank of New Zealand Amendment Act in August, and they provide an indication of the direction of our generic policy thinking on these matters.

The Reserve Bank's conditions associated with the acquisition were in four main areas. First, any transfer or outsourcing of the National Bank's core banking functionality, including by way of an operational merger, will require the Reserve Bank's further consent. Core functionality includes all management, operational capacity and systems necessary to operate the bank on a stand-alone basis in the event of failure of an outsourcing provider, including a parent bank. The intent of this requirement is to ensure that any outsourcing does not undermine the legal authority and practical ability of the directors or statutory manager of the National Bank to run the bank on a standalone basis if the need should arise. This doesn't necessarily mean that the core functionality must be in New Zealand--it means that legal and practical access to it in a crisis must be unimpeded.

The second area where we imposed conditions of consent strengthens the first. We require that the National Bank chief executive's employment contract be between that person and the board of the National Bank, and that any amendments to the National Bank's constitution have our consent. The intent of these measures is to ensure that there is coherence in the National Bank's local accountability arrangements and that the local board remains in a strong position to exercise independent and meaningful governance of the management of the National Bank, in the best interests of the National Bank, in good times and in bad. This requirement should be seen as a means of reinforcing our emphasis on the role of directors in overseeing a bank's operations, and our ability to manage a crisis involving the failure of any large bank in New Zealand. …

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After the National Bank Acquisition: Living with Big Australian Banks: An Excerpt from an Address to the Australasian Institute of Banking and Finance by Dr Alan Bollard, Governor, Reserve Bank of New Zealand 6 November 2003
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