Banks may use RBNZ or support from parents before funds squeezed pre-Christmas

Some scepticism emerged yesterday over National Leader John Key's stark warning that New Zealand's banks may see their overseas funding lines dry up by Christmas. Various observers pointed out that the banks have yet to use the Reserve Bank's facility to lend to them in exchange for mortgage backed securities and that they have yet to call on their parents for extra funding. KPMG partner Andrew Dinsdale told the New Zealand Herald: "They've got wholesale funding guarantees, why aren't they funding their subsidiaries?" APRA's revised APS 222 prudential supervision rules here state that a bank must not have more than 50% of its Tier 1 capital base exposed to a subsidiary. Some industry players have said a couple of the Australian parents may struggle to keep below those limits if their New Zealand subsidiaries required extra funding in the next year or so. ANZ National would be the obvious candidate, given it has a larger exposure in New Zealand than the other big three. Meanwhile, Brian Fallow at the NZ Herald said in a comment piece titled "Aussie banks hide while we panic" that: "The Australian parents of New Zealand's banks have made out like bandits during the good years. Now they are hiding behind the Australian banking regulator's rules which limit the extent to which they can extend funding to their New Zealand subsidiaries. The extent to which that is a binding constraint will vary from bank to bank, but in any case it is an unedifying spectacle." Fallow also added that any extension of the Deposit Guarantee Scheme would require parliamentary scrutiny. * This article was first published exclusively yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.