Australia threatens to look elsewhere

Australian Treasurer Peter Costello has signalled that Australia will go elsewhere if it cannot get agreement with New Zealand on banking supervision.

Costello, who wants a single banking regulator to monitor both countries, said the "pressure is on in the next two years".

"We'll get measurable improvements - or if we don't, this will just move to the backburner.

Costello wants Australia with its 20 million people to bulk up by forming a single market with New Zealand's four million people.

He suggested Singapore, or the Asean grouping of nations, as alternatives for Australia if it cannot reach agreement with New Zealand.

Finance Minister Michael Cullen has denied that Australia is putting pressure on New Zealand to adopt a single regulator to monitor banking in both countries.

Sources suggest Cullen privately shares Costello's views, but does not want to upset the Reserve Bank, which is opposed to any move to take banking supervision from it.

Officials also suggest that Costello does not necessarily believe that the Australian watchdog, the Prudential Regulatory Authority (APRA), should simply monitor New Zealand institutions - but favours a transtasman body based on it.

Terms of reference for a transtasman banking supervision council issued by Cullen on Friday do not mention the single regulator as a discussion item.

Sources suggest Cullen may be seeking to buy time to talk officials around to at least consider the option by their May 31 reporting date.

In an interview with the Herald, Costello countered objections by New Zealand officials "tackling head on" the claim that removing banking supervision from the Reserve Bank's remit would reduce critical institutional mass at the central bank.

He said the Reserve Bank of Australia left supervision to the APRA.

"But it is a "very active alive institution with a critical mass because it does monetary policy".

Costello said the time for the banking industry to make known its objections to Australian involvement in New Zealand was at the time of ANZ Bank's takeover of National Bank in late 2003.

Today, 85 per cent of New Zealand banking assets are Australian-owned, and the two markets have been substantially integrated.

"Any country has the right to reject foreign investment," said Costello."

But if New Zealand's banking industry was really worried about Australian banks that was the time to reject it.