Top 10 at 10: Ralph Norris reopens Trans-Tasman banking regulation debate; 4 more years of Bernanke; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions in the comments below or please send suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz 1. CBA CEO and former ASB CEO Ralph Norris has called for a common regulator for Trans Tasman banking. Fran O'Sullivan reported in the NZ Herald that Norris made the call at the Australia New Zealand Leadership Forum in Sydney.

An Australian Government-led push for APRA to supervise Australian banks operating in New Zealand was shelved in 2006 in favour of the NZ Reserve Bank continuing to exercise this function under an enhanced information-sharing model, instead of concentrating solely on monetary policy like its Australian counterpart does. But Norris said it was time to put the issue on the table again.

This debate, like the Anzac currency debate, is eventually all about sovereignty. Who controls our banking system? Is it us through the RBNZ or the Australians through APRA? Norris then goes on to suggest our regulators haven't done as well as the Australian regulators in the last couple of years.

He contrasts the situation in Australia, where APRA had learnt from financial debacles to ensure a strong supervisory focus, with the conditions which led to the collapse of the finance company sector in New Zealand.

"Most people knew the sector had real prudential issues - particularly around concentration issues and related party transactions - which led to the sector's undoing," said Norris.

It's unfair to blame the Reserve Bank for the finance company debacle, given the RBNZ was not the regulator at the time. The Securities Commission and a 'do nothing' Labour government can take the blame. The Australian regulatory scene is also not squeaky clean either. The various collapses of Opes Prime, Storm Financial and Timbercorp have happened  on APRA's watch. But Norris then goes on to point out the real politik of this issue. The crisis last year demonstrated that the parent banks in Australia were in control anyway because they pumped cash across the Tasman when the New Zealand arms couldn't raise cash on international markets.

"The Australian banks were effectively raising funds internationally and then transferring them to their New Zealand subsidiaries," Norris said. "If New Zealand had a situation where its banking system was effectively stand-alone then I think the difficulties for the NZ banking system would have been very similar to what has happened in Ireland."

My view is any change like this should be an election issue and considered in tandem with a move to a single currency, a single stock market, more closely aligned tax rules and more aligned business regulation. I wrote a Dominion Post editorial strongly opposing a Trans Tasman regulator in 2006, arguing we should not give up our sovereignty. My view has morphed a bit since then. New Zealand is now essentially in the hands of the Australian government anyway. Our debt binge of the last 5 years and our financial connections to Australia are so strong that we are effectively underwritten by Australian savers and the Australian government. The last 9 months of the crisis proved that. Should we simply formalise the informal and acknowledge the inevitable? 2. Blue Star Print Group has suspended interest payments on its subordinated capital bonds as part of a restructuring of its balance sheet and a rewrite of its covenants with creditors. This is all part of the delevraging process spreading around the world. 3. Thinks are looking ugly for Strategic Finance, which is already in moratorium. Its major project in Fiji at the Denarau Hilton has frozen and now it's in dispute with the developer, Kris Hall from The Press (Stuff) reports.

The beleaguered finance company, which last August froze repayments to 15,000 investors, has lent more than $70m to Auckland developer Neville Mahon. Mr Mahon, who runs Lausanne Project Management and Denarau Investments, told BusinessDay that work on developing new villas and backroom facilities stopped four weeks ago when funding dried up. "The development, right today, needs another $14 million to do the work that needs to be done. I've found the money. Bank of Scotland are supportive, Strategic are not. It's that simple," he said. Strategic chief executive Kerry Finnigan said the funding crisis had materialised from a cost blow-out which the developer was supposed to remedy, but had so far failed; the terms of the $14m injection were unfair and against investors' interests. "Neville's been quite selective with his interpretation. What his investor is wanting us to do is step away from our security position to allow that money to come in. We're not prepared to do that.

4. Anne Gibson from the Herald also reports on the imminent demise of the Fiji Resort. 5. Barack Obama has renominated Ben Bernanke for the Chairmanship of the Federal Reserve, Bloomberg reported. It's another sign that Obama is heading in the wrong direction and can't be changed, or more accurately, isn't really in control of his economic establishment. 6. Spain's banks are in an awful mess because of the implosion of Spain's property sector, according to this explosive report by variant perception titled: "Spain: The Hole in Europe's Balance Sheet". HT Felix Salmon

We argue that 1) the real estate crash in Spain is worse than is widely believed, 2) Spanish banks are hiding their losses, and 3) investors are smoking crack if they believe that Spanish banks are among the strongest in Europe. Spain will soon have zombie banks like Japan. We believe that Spanish banks are not marking their real estate loans to market and are extending credit to zombie construction companies. They do this by 1) Getting a boost from accounting changes, 2) Not marking loans to market, 3) Continued lending to zombie companies, 4) Extending 40 year and 100% loan-to-value loans, and other bubble-like lending practices. We look at eachof these in turn.

7. Felix Salmon points out that not all Spanish banks are the same.

It's important to draw a distinction between Spanish banks in Spain, which are largely domestic savings banks, and Spanish banks as they exist in the imagination of the international capital markets (Santander and BBVA). Santander is a well-managed and internationally-diversified bank, which does retail banking extremely well. BBVA owns the largest bank in Mexico, Bancomer, and has built an extremely strong franchise stretching from Texas, through Mexico and central America, and down through the Andes. While neither bank will be immune to a national disaster in its country of origin, their international holdings will help to soften the blow. At heart, however, the situation in Spain will be familiar to many US observers: consumers augmented their low wages by making huge amounts of money in a soaring property market. And now that the property market has stopped soaring, they're left with hundreds of billions of euros in loans, an enormous percentage of which will end up in default. The problem in Spain is exacerbated by the fact that much of the property bubble was concentrated in the beach-home market on the coast, where the willingness of homeowners to pay mortgages on underwater properties is much lower than historical data would suggest.

8. Former Fed Chairman Paul Volcker makes the interesting point in this Bloomberg story that money market funds weaken the US financial system. These funds are often run by investment banks and promoted a bit like term deposits here in New Zealand. They are supposed to invest in the safest type of bonds. Their near implosion in September because many had invested in AAA rated mortgage bonds was a major factor in the crisis.

"Banks remain the functioning heart of the financial system, and they are protected and regulated," Volcker said in a telephone interview last week from his New York office. "To the extent they have competitors that have different ground rules, kind of free-riders in my view, weakens the financial system." Money-market mutual funds, which first appeared in 1971, have developed into a $3.5 trillion pool of cash outside of the regulated banking industry that provides short-term funding to thousands of companies and financial institutions at rates below conventional loans. Their pivotal role in the economy was highlighted in September when the collapse of the $62.5 billionReserve Primary Fund sparked a run by investors that in turn froze thecommercial-paper market and threatened to cut off thousands of borrowers. Volcker has been a vocal advocate of imposing bank-like requirements on money funds, to the dismay of asset managers as they wait for the Obama administration to issue new rules for the industry. His proposals "would eliminate money funds as we know them," Paul Schott Stevens, head of the Investment Company Institute, a mutual-fund industry trade group in Washington, said in March.

9. Rolfe Winkler at Reuters makes the point that Bernanke's reappointment is bad, but his replacement with the man in pole position, Larry Summers, would have been worse.

If Summers was the only other option on the table, then I'm not so disappointed Bernanke is sticking around.  That said, I think Fed policy under Bernanke has been terrible. The Greenspan interventions he supported inflated the largest credit bubble in 80 years; the de-leveraging that needs to happen to correct the damage has been delayed indefinitely by Bernanke's own interventions. His supporters say he averted a second Great Depression. I disagree. He's merely delayed it. The liabilities of the financial and consumer sectors haven't gone away, they've merely been absorbed by the public balance sheet. This is as much Hank Paulson's and Tim Geithner's fault as it is Bernanke's. I'm not thrilled with their leadership either.

10. Morgan Stanley Asia Chairman Steven Roach makes a strong case in this FT.com against the re-appointment of Bernanke.

Barack Obama has rendered one of his most important post-crisis verdicts: Ben Bernanke will be nominated for a second term as chairman of the Federal Reserve. This is a very shortsighted decision. While America's head central banker deserves credit for being creative and courageous in orchestrating an unusually aggressive monetary easing programme, it is important to remember that his pre-crisis actions played an equally critical role in setting the stage for the most wrenching recession since the 1930s. It is as if a doctor guilty of malpractice is being given credit for inventing a miracle cure. Maybe the patient needs a new doctor.