Westpac digs in on rule change

By KEVIN TAYLOR

Westpac continues to resist local incorporation more than three years after the Reserve Bank announced plans to change the rules under which banks operate.

It is not known whether the Reserve Bank is happy or unhappy with talks with Westpac over the issue dragging on for more than three years.

That is because the Reserve Bank cannot comment on the circumstances applying to individual banks, says corporate affairs manager Paul Jackman.

In September 1999 the Reserve Bank said it planned to require some overseas-owned banks that operate here as branches to become locally incorporated subsidiaries.

Reserve Bank deputy governor Dr Rod Carr said at the time that a locally incorporated bank, even if foreign-owned, was a stand-alone legal entity, unlike a branch.

As a result creditors had claims on a clear-cut legal entity and list of assets.

With a branch, these demarcation lines were not as well defined.

He said it was becoming more difficult with all banks to define a New Zealand asset or determine the country in which an asset was held.

Carr said local incorporation would make it easier to manage this problem in the event of a crisis in the banking system.

As well, the laws in some countries meant that if a bank registered in that country failed, depositors there were treated better than those in other countries.

But the argument does not wash with Westpac, the only major bank not locally incorporated.

A Westpac spokeswoman said yesterday the issue was still discussed every three months or so with the Reserve Bank.

But Westpac considered depositors were already protected by the Westpac Act 1982.

The New Zealand law allowed for the merger of the Bank of New South Wales and the Commercial Bank of Australia, and gave New Zealand Westpac depositors priority over New Zealand assets of the bank.

The spokeswoman said local incorporation would be inefficient and would create significant costs for Westpac.

"We believe our depositors are already well protected. We don't see that by being locally incorporated New Zealanders would get any greater protection."

The spokeswoman said the talks with the Reserve Bank were on how its objectives could be met without Westpac being locally incorporated.

"The reason for the delays is simply the number of years that we have been having discussions with them."