STACY SQUIRES / STUFF
Each of New Zealand's four big banks is owned by one of four large Australian banks.
Australian banks have been thoroughly checked at the royal commission for financial services, as reported on Friday. But the only thing they did not have is the relationship with the New Zealand subsidiaries.
Each of Australia's four big banks has one of four big-four in New Zealand.
This has important practical aspects, when the New Zealand Financial Markets Authority and New Zealand Bank Reserve recognize New Zealand Bank behavior and culture in November.
TOO BIG TO FAIL?
If systemically important banks become difficult, the host country's government usually takes part in a rescue package and takes over the depository.
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This guarantee (implicit) guarantees this bank a "big mistake" situation. Funds are cheaper to borrow less than their smaller competitors, and lenders believe that the government will reach their rescue. It also has the opportunity to take greater risks, aware of it by taxpayers, regardless of their survival.
New Zealand is trying to end this guarantee.
NOT THE NEW ZEALAND
Simply, if the Bank of New Zealand fails, according to the Bank's Resolution, the bank will have a quote on shareholders and creditors rather than taxpayers.
They have lost some savings with their homes.
Suppose the financial crisis goes to both countries at the same time, so that the economies of Australia and New Zealand have similar risks.
The Central Bank's failure would not endanger a taxpayer funded bailout. Australian aid was aided financially.
If this help is endangered by Australian parents, Australian taxpayers should rescue them.
Australian taxpayers support the New Zealand banking system.
NO USEFUL WAY
There are problems with each obvious solution.
It would be your own Zealand that the deposit insurance policy would cancel its declaration that its banks will not be saved.
From New Zealand's perspective, it would be unfair: Australia's owners will be able to raise the profits of New Zealand affiliates at this time, in order to hinder the bad news from New Zealand taxpayers.
New Zealand regulators will also wear that burden that Australia's owners did not take too much abuse in New Zealand.
Another solution would be that Australia would continue to be the leader in New Zealand and stated that it would have a strong signal and would not support the major Australian banks.
This policy may not be compelling. The political expenses that would allow the loss of households would be tough for selected officials. The government would take great pressure to refuse its commitment.
Thirdly, the intriguing choice is that governments around the world should work together and formalize "too great" guarantees so that other governments know how to do the same. In order to exclude taxpayers' commitment, governments may charge major banks for major faults.
The royal committee immediately informed what to do.
– Matthew Greenwood-Nimmo is an economics professor at Melbourne University
– Timothy Jackson PhD student at Melbourne University
– This article was originally published in The Conversation. Read the original article here.