SYDNEY -- Citibank's chief executive in Australia, Brian Clayton, said the government's decision to allow retail deposit-taking through foreign banks' subsidiaries but not branches would hamper the competitiveness of the foreign-owned banks.

"I respectfully disagree with this decision," Mr. Clayton said at an international banking conference.

He said the move was probably motivated by the central bank's responsibility under the Banking Act to protect depositors' funds.

In February, the government's announced a policy on foreign banks that invited them to open both subsidiaries and direct branches of overseas parents. But the branches' deposit-gathering was to be restricted mainly to wholesale markets.

Central Bank's View

A senior Reserve Bank of Australia official told the conference on Thursday that the restriction was meant to improve regulation and supervision of the branches.

Mr. Clayton, whose bank has the largest market share among non-Australian banks in the country, said his customers' funds were adequately protected.

"The role of international credit agencies and the adoption of [Bank for International Settlements] capital guidelines in the major economies would, to my mind, provide the same quality of protection whether a branch or subsidiary," Mr. Clayton said.

A global organization like Citibank and its parent, Citicorp, would risk its reputation if depositors in a local branch were not protected, he said.

Mr. Clayton aid that although one aim of deregulation was increased retail competition, he did not foresee more foreign banks' entering the Australian retail market, particularly as full-service providers.

"Infrastructure costs are high and the market is dominated by the four major [domestic] banks," Mr. Clayton said. Under the new policy, wholesale banking would be more attractive for foreign banks, particularly if little or no capital were required.

Benefit Is Doubted

"It is envisaged that a number of banks will open as branches here in Australia under these circumstances, but I should repeat that this increased competition is unlikely to extend to the retail market," he added.

The new policy sets no limits on the number of foreign branches or subsidiaries or the time within which applications must be made.

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