Orr said the risk of directors sitting on both boards could come if the Australian parent got into trouble and then decided it needs to pull money out of the New Zealand bank.
"The Australian board says we need to bring capital back from New Zealand to bolster the Australian side. What does the New Zealand director say - "no that couldn't be possible you are endangering my other board" or "yes that makes sense"," he told RNZ.
The proposal isn't imminent but is just one on its long list of things it needs to consider, Orr said.
Orr's proposal comes as the New Zealand banks are already under pressure from the Reserve Bank over proposals to increase bank capital.
This week the Reserve Bank released an Independent report on its proposals in which two of the three academics found the increased capital would have a smaller impact on interest rates than it had estimated, according to two experts in an independent review of the process.
The increase is designed to make banks safer and better designed to handle periods of financial stress by holding enough capital to reduce the probability of a financial crisis in New Zealand to a one in 200-year event.
But Australian bank bosses have pushed back, calling it overly conservative and warning that it could limit the availability of credit in some sectors of the economy and increase interest costs for borrowers.
The Reserve Bank is expected to make a final decision on its capital proposals in December.
