Background to Reserve Bank consent to ANZ/National Bank amalgamation

This note provides some background to the basis on which the Reserve Bank has given its consent to the amalgamation of the ANZ and National Bank into a single bank.

The merger has required the Reserve Bank to apply recently developed policy objectives for large overseas-owned banks to a specific case, for the first time. As a result, a new template has been established that we are looking to apply to the other large banks in due course.

That template includes standard conditions of registration relating to, amongst other things, capital adequacy and the nature and scope of the business. But there are also two additional conditions relating to the role and responsibilities of the bank's board of directors and of its senior management, and to the need for the bank to have an independent operating capability in New Zealand.

First, we have firmed up on the requirement that the board of directors of a foreign-owned bank must act in the interests of the New Zealand bank, rather than in the interests of the overseas banking group of which it is a part. This policy will be effective across all major banks from July 1 2004.

In addition, for ANZ National Bank, we require that the primary reporting relationships of senior executives in New Zealand be to the New Zealand chief executive, and through the chief executive to the New Zealand board. This is in contrast to a trend in recent years for New Zealand bank managements to operate under arrangements that included direct reporting to overseas parent bank management. The Reserve Bank expects to apply a similar condition to all major banks in due course.

Second, ANZ National Bank must maintain systems that would enable the New Zealand bank, if required, to operate independently from key service providers, including, in the case of a foreign-bank owned bank, independently from its foreign parent.

The requirement that ANZ National Bank maintain an independent operating capability is to ensure that the New Zealand bank could continue operating if the provision of management or systems services by an overseas parent bank, or other major service providers, were to be withdrawn, say, in the event of the service provider becoming insolvent. Again, the Reserve Bank expects to apply a similar condition to all major banks in due course.

These qualities of governance and operating capability are important if New Zealand banks are to be managed on an ongoing basis in the best interests of the New Zealand financial system. In particular they are necessary for adequately dealing with financial stress or failure management situations, when the directors of a bank, or a statutory manager acting in the place of the directors, will need unfettered practical access to key staff and systems to manage the New Zealand bank through its difficulties.