While the Reserve Bank finalised its liquidity policy for banks in June, it has yet to complete the reporting requirements lenders will have to adhere to, nor has it announced the regime for non-bank deposit takers. Until this is known, banks will continue to pitch for short-term customer deposits, according to ANZ National Bank's Jenny Fagg, even as the cost of wholesale funds comes down.

"If you look at it in isolation, you'd have the customer funded deposit rates somewhere around where your lending rate is, if you ignore liquidity requirements, they should just equalise," Fagg told Good Returns. "It's the unknown liquidity requirements" that's helping prop it up, she said.

Under the Reserve Bank's liquidity policy, banks will be required to keep "robust" liquidity positions over both the short- and long-terms, as well as keeping the regulator abreast of risks to its business.

Banking regulators in Australia and New Zealand had handled the credit crunch and financial crisis well, Fagg told a trans-Tasman credit conference in Wellington. Still, there is a risk that they will go overboard in regulating the industry, despite the Big Four Australian banks proving themselves to be well-placed in the global economy.

"The knee jerk reaction is to tighten tighten tighten and I don't think that is the right answer - it's  more finessing the area," she said. "It makes sense to have limits and thresholds and guidelines, just keep them at a sensible level rather than over-reacting."

Fagg admitted she had never seen competition for deposit rates so tight, which was forcing banks to slash their margins on lending as they continue to attract domestic depositors with high returns.