The International Monetary Fund is cautioning the Government against bending over backwards, deregulating banks in a bid to spur more competition in the sector.

Finance Minister Nicola Willis is getting advice on whether she should make the Reserve Bank of New Zealand (RBNZ) loosen the way it regulates banks.

The Commerce Commission has also suggested the rules could be changed to make it easier for small banks to compete with big ones.

NZ Herald Wellington business editor Jenee Tibshraeny explains why the IMF is issuing words of caution as these discussions take place.

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