Adams Amy: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Adams Amy: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6052] 
AMY ADAMS (National—Selwyn) 
: 
 The discussion on this bill this afternoon takes us back to the period in the second half of 2008 when amongst other things we had the collapse of Lehman Brothers which is now really hitting home when we see the extent of the debts involved. We are looking at over US$613 billion which is nearly NZ$900 billion of debt by what was assumed to be one of the safest and largest financial institutions. In some ways that was the catalyst that drove the world to understand that it was facing an economic typhoon. 
The sense of crisis and indeed panic really started to pick up momentum and Governments had to act and act quickly to ensure that they were not all caught up in this particular set of circumstances. At that time our own Parliament had been dissolved for the general election. We were between Parliaments. The last Government acted under the Public Finance Act and it used the powers in that Act to ensure that retail and wholesale guarantees were put in place to ensure that confidence could be maintained in our banking system which the National Party certainly supported. It was the necessary thing to do and it was in line with what other countries in the world were doing. 
Now it is time to look at that scheme with its expiry looming in October of next year. I say “looming” because although that is still more than a year off in financial terms and looking at retail deposits this is exactly the sort of time when people are planning long-term deposits in institutions. In fact the period between now and then is quite a short term. So we find ourselves in a situation where it is a matter of some urgency to address the date when that deposit scheme will end—and whether it will end—and to put in place under primary legislation a properly formulated deposit scheme that can continue to ensure that we have the necessary confidence in our financial markets while we see the fragile recovery the economy is now going through continue and gain in its stability and strength. 
This guarantee was always about and continues to be about providing security in a period of great uncertainty. It is not a long-term position and I think there is clear consensus on that point. There is no view at all that a guarantee from the Government on retail deposits is a long-term position to be in. It is certainly pleasing to see consensus from across the House on the subject matter of the bill but the question we have to turn our mind to is not whether it is appropriate to have this guarantee but rather when the guarantee should end and how it should be removed in a manner that does not undo all the good work that the scheme has done in ensuring consumer confidence. 
We have seen particularly in the last month and even in the last few days some early signs of recovery in the economy but I think it would be a very brave economist who would be prepared to stand up now and say that the troubles are all behind us. In my own view I think that the beginnings of the recovery are certainly there but it is a fragile thing and it could be easily derailed. There is very much a need to ensure that confidence and stability in the financial markets are maintained. This scheme is no small part of that. We are talking about $120 billion of deposits guaranteed through 73 institutions. 
But more than just providing some security and peace of mind to individual depositors—mum and dad depositors and small businesses alike—the scheme has been important in a number of other important but perhaps less obvious ways. It encourages savings. We know that one of the big issues in our economy is that we do not save enough. Certainly if there is not a sense of security in our financial institutions we can be sure that saving will get worse. So that is an important part. 
Equally though I think it is worth touching on the fact that the $120 billion that is guaranteed is not just sitting there waiting for someone to collect it. It is providing the funding and the liquidity that our businesses need to keep going through this recession. That directly leads to jobs and growth. So this is about more than simply providing a guarantee. It is about ensuring that the liquidity tap is not turned off and that our economy can keep functioning. That money is working hard for our economy while it is in those institutions. 
The other thing it does is enable us to preserve a second tier of lending institutions which is an important part of our financial markets. Not every borrower can access first-tier bank funds and the second tier plays an important role. Equally I think that anyone looking at the financial situation would agree that one of the reasons New Zealand has been able to avoid the worst of the recession that other countries have seen is that we do have a stable banking and financial sector. Steps that maintain that and encourage people to continue to have faith in our banking sector are certainly important. 
As my colleague Mr Foss has already mentioned this scheme in New Zealand mirrored what was happening in many other parts of the world and through the Crown Retail Deposit Guarantee Scheme Bill we are now seeing the end date of our own scheme coming into line with that already in place in Australia. Of course extending the term of the scheme does without question extend the period of risk. This is not something that we brush over or take lightly but the altered terms and conditions that we will see under this new scheme which will take effect immediately the old scheme expires will go some way to reducing that risk. I think the point to bear in mind though is that overall the risk to our economy of not having our retail deposits guaranteed while the recovery gains momentum is a far greater risk for this country than the risk we bear through extending it. 
The final point I would like to make in this first reading contribution is just to point out that the bill if passed will come into force immediately it receives Royal assent thereby creating immediate certainty into the market. As I have said the uncertainty around when the scheme will end is already causing uncertainty in terms of long-term planning decisions. Therefore we are aiming to give immediate certainty to that market which will allow people to start to make long-term decisions that extend beyond October of next year. Thank you.