This close cooperation between both countries is very consistent with the
theoretical work by Wolf Wagner and myself, recently published in the International Journal of Central Banking (Supranational Supervision: How Much and for Whom?). Specifically, our model predicts that
high externalities from cross-border bank failures and limited heterogeneity across two countries makes it more likely that the two countries agree on regulatory cooperation. As described above, these externalities from the large four Australian banks are
relatively symmetric across both countries. And both countries have lots of history, culture and institutional frameworks in common, not to mention the language. And the relatively symmetric nature of the externalities makes the political economy of cross-border
regulatory cooperation somewhat less tricky than in many other country pairs and sub-regions, where only one of countries or some members of the sub-region would benefit from closer cooperation. When looking beyond cross-country comparisons and the
big picture, however, the details look a bit more tricky. The home-host country split between Australia and New Zealand provides for a divergence of interests. While the Reserve Bank of New Zealand is primarily interested in safeguarding financial
stability in their own country and limit any negative contagion effect from the parent bank on the subsidiaries, the Australian authorities cares mostly about the stability of the consolidated bank. There are also differences in the financial safety net structure
across the two countries, most prominently, while Australia introduced a deposit insurance scheme after the Global Financial Crisis, New Zealand continues without such a scheme.