Peters Winston: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumePeters Winston: Oral Questions — Questions to Ministers[Sitting date: 29 October 2014. Volume:701;Page:336. Text is incorporated into the Bound Volume.]3.Rt Hon WINSTON PETERS (Leader—NZ First)to the Minister of Finance: Will he introduce a Government guarantee on bank deposits in New Zealand; if so when?Hon BILL ENGLISH (Minister of Finance):Depositor protection is in place now through the Reserve Bank’s open bank resolution scheme which has been thoroughly consulted on and is in place as we speak. This scheme includes a Government guarantee on all depositor funds that are not frozen as part of a bank resolution. Because of recent experience with Government guarantees—that is the collapse of South Canterbury Finance—and because of the substantial contingent liability associated with any kind of prospect of failure of our large banks there is continuing work by officials and ongoing discussion with the banking sector around the appropriate level of bank resolution and depositor protection. Managing the risk of bank failure is complex with potentially large costs to the taxpayer. The Government has to balance the security offered by a Government guarantee to depositors alongside the need for banks to have good incentives to ensure that they are sound financial institutions and will not impose large costs on their depositors shareholders creditors or the taxpayer.Rt Hon Winston Peters: Why is the Government not following the example of many other developed economies and providing this type of Government guarantee of bank deposits to a reasonable level?Hon BILL ENGLISH: There has been ongoing discussion about the appropriateness of depositor insurance in our system. The Reserve Bank has implemented what it believes to be a more focused solution—that is open bank resolution which includes depositor protection. It really comes down to the matter of the right incentives on the banking system. On the one hand the reality is that when banks have been threatened with collapse Governments have provided a guarantee. On the other hand we do not want to undermine the need felt by the owners and managers of banks to ensure that they cannot play fast and loose with financial risk simply because their depositors will not suffer any losses. The member is pointing I think to a pretty finely balanced equation and because of the significance of this for the Government’s balance sheet we do make sure there is ongoing testing of the current regime.Rt Hon Winston Peters: Having regard to this very finely balanced equation when will the Government or the financiers come to a decision and consider all those countries with a Government guarantee for bank deposits such as Australia Canada and the UK to be actually right on this matter now?Hon BILL ENGLISH: I can assure the member that there is ongoing discussion. For instance the regime that applies in Australia to our banks is different from that that applies to New Zealand and those matters are discussed regularly in the Trans-Tasman Council on Banking Supervision. All the issues that the member I know would want to be raised have been raised in that context. We hope to continue resolving the differences bearing in mind that each Government has the interests of its own taxpayers and depositors at heart and they do not always align completely with each other.Rt Hon Winston Peters: When can we hope that this Government will actually do something rather than risk another South Canterbury Finance fiasco by not putting a Government guarantee scheme in place before the onset of another financial crisis?Hon BILL ENGLISH: Again the member is raising reasonable points. One of the arguments for depositor insurance is that it effectively means that depositors prepay any bailout funds. Of course that is not costless. That imposes costs on the whole economy because effectively interest rates would have to be a bit higher to achieve that. As I have indicated the Government has been monitoring both the current regime that is in place—open bank resolution which does include Government guarantees of depositor funds—and the differences between our regime and for instance the Australian one which is a pretty real-time issue: to have two different regimes applied to the same banks.Rt Hon Winston Peters: Why is the Government continuing to mull over this issue when it can be seen to be encouraging New Zealanders to put their savings offshore into another country’s bank accounts and have those accounts covered by another Government guarantee à la Australia?Hon BILL ENGLISH: Right now I do not think that is the case. As recently as yesterday Standard and Poor’s a credit rating agency on which both Governments and bank depositors would rely to assess the soundness of our banks said that our banks are sound and that the open bank resolution process that is in place is a sound scheme. The member may be referring to events around the implementation of the sovereign guarantees back in 2008-09 and certainly there was a risk then that New Zealanders would remove bank deposits from here and put them in Australia if they believed they were going to be insured there. Again it is not clear in the future that an Australian Government would tolerate that kind of behaviour either. I am not criticising the member for raising the issues; they are all legitimate issues.Rt Hon Winston Peters: Could I ask the Minister why this matter is so time consuming to conclude that he is averse to giving guarantees—Hon Steven Joyce: We don’t guarantee.Rt Hon Winston Peters: —when in fact the Government does guarantee—for that member’s sake—the capital interest held in the Public Trust common fund for example? Get your facts right big ears—it does guarantee.Mr SPEAKER: Order! Just ask the question.Rt Hon Winston Peters: Well he wants to chip in. I am telling him—Mr SPEAKER: Order! This is another example not different from yesterday where interjections do not help the order of the House. I am going to invite the member to start his question again.Rt Hon Winston Peters: That is very reasonable of you Mr Speaker. Thank you very much. If the Minister and the Government are so averse to giving Government guarantees why is there a Government guarantee for for example capital interest held in the Public Trust common fund?Hon BILL ENGLISH: At least this member here uses his ears for listening. We could get into the detail of the Public Trust but it is less than 0.5 percent of the value of banking assets. In fact it is probably less than about 0.25 percent of the value of banking assets so we have not paid quite so much attention to the Public Trust. But the member is I think rightly raising issues around the nature of the Crown guarantee. In the end the important thing is that taxpayers are not left with the burden of badly run banks and that we should have a regulatory regime and a set of incentives to ensure that banks that are large enough to wreck the Government’s books never actually fail.