In response to the GFC most regions are embracing financial integration (through banking unions and proposed ‘capital markets union’). Creating a banking union between Australia and New Zealand would require harmonising regulation, a single supervisory mechanism and a single resolution mechanism. Closer financial integration should appeal to Australia as it would imply very little change, and create gains from reduced costs and better coordination. The proposal may be less attractive for New Zealand as the changes would be greater (for example determining the role of the RBNZ), but the gains for the smaller country accessing the larger market are normally also greater.
This paper was presented in July 2015 at the 20th Melbourne Money and Finance Conference (MMFC), which explored the theme The Australian Financial Sector and Global Integration.
For more papers presented in the conference, please click here.