For some time APRA has shown limited respect for the NZ Reserve Bank’s regime for bank supervision. It has begun applying Aussie rules to the NZ subsidiaries that NZ says must have standalone capacity, as if parallel NZ requirements did not exist.

The consequence for our big four is overlap and expensive double reporting.  It is not entirely surprising – a price for allowing ourselves to depend on another country’s banks. And understandable that APRA would not want to leave regulatory gaps as compliance loopholes. But I hear they’ve chosen to make little pretence at respectful collaboration.

It should be deeply embarrassing for the RBNZ (and the NZ government). The RBNZ under Dr Brash after the 80’s and 90’s reforms had a reputation as the world’s best central bank.

Now APRA has another casual slap on the way for NZ and the senior people at our big four. Submissions are due by 3 August on a plan for Bank Executive Accountability Rules that ignore and overlap with our regulation of investment advisors. Among other things they will stipulate for delayed payouts under senior banker incentive pay schemes.

Many may welcome interference in bankers’ bonuses. They might be less enthusiastic if the effect is to inflate bonuses in compensation for unwanted stipulations.

Theoretically, restrictions on the Aussie big four should give our domestic minnows more scope for inventive competition. Kiwi, Coop, Heartland and SBS might be more attractive employers in comparison. Rabo and HSBC and other offshore players will of course also be unconstrained.

This reminds me of how limited the competetition now is. In the two previous business cycles I’ve experienced, at a time when demand for business and developer finance is high, and the NZ interest premium is also high, with low interest rates on consumer deposits, we should be seeing rapid growth of finance companies. Some would eventually mature into bank competitors, some would be bought by banks and some would justify the high interest they pay by eventually collapsing

Unfortunately the current RBNZ leadership’s low intelligence regulation of non-bank deposit takers has strangled that process. By unlawfully ignoring the restriction of their powers to systemic level risks they extended bank prudential supervision to institutions that offered no systemic risk.

The RBNZ has underpinned Aussie Bank profitability by preventing what should have been emergence of competing challengers to bank intermediation.