Smith Lockwood: Reserve Bank of New Zealand Amendment Bill (No 3) — First Reading 
Smith Lockwood: Reserve Bank of New Zealand Amendment Bill (No 3) — First Reading 
[Volume:644;Page:13832] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 To listen to the Minister of Finance now in the first reading of this Reserve Bank of New Zealand Amendment Bill (No 3) one would think he sounds about as enthusiastic for this legislation as he is for personal income tax cuts for which he has about zero enthusiasm. But the difference is that this legislation will go through whereas with personal income tax cuts who knows? The last time this Minister promised personal income tax cuts of course he changed his mind and he did not deliver them. 
Let me come to the detail of this bill. The Minister has covered most of it and there is little point repeating all of what he said. He went through it so fast that listeners may have missed out on some of the key bits. He mentioned an awful lot about these non-bank deposit takers—he referred to them often. That is what they are but I want to make it clear that here we are referring to the finance companies the building societies the credit unions and businesses like that. 
It is important that we introduce a better regulatory regime for these businesses because I think many New Zealanders in recent times have suffered significant losses following the turmoil in financial markets associated with the problems in the subprime mortgage market in the United States. We have seen finance companies here in New Zealand go under with many lenders if you like—people making deposits with those financial institutions those non-bank deposit takers—losing their money. I think it is in the interests of all New Zealanders that we improve the regulatory regime around these financial institutions. So many of them now I think it is fair to say are actually involved in many activities that the trading banks are involved in. It makes no sense for some of these lending institutions to be carrying out similar kinds of business to trading banks yet not to be regulated in remotely the same way as trading banks. 
I think that the regulatory regime proposed in this legislation makes sense. The Minister went through it very quickly but it includes things like requiring finance companies above a certain size to have a credit rating. Banks are required to have that and so should these institutions as well. Things like regulations around risk management minimum capital requirements capital ratios maximum limits on exposure by these financial institutions and certain liquidity requirements are fundamental prudential regulations. I think all members of this House would say: “Yes now that these institutions are involved in transactions similar to our trading banks they need to have this kind of regulatory framework within which to operate.” 
I make it very clear right from the outset that National will support the first reading of this bill and it being sent to a select committee. There are a couple of things we will probably want to learn a bit more about during that process. The first one I mention is one the Minister did not mention in his first reading address. He went so fast that I may have missed it—if so I ask the Minister to forgive me. Clause 6 of the bill has a curious amendment to the principal Act. Maybe a Government speaker will be able to enlighten us as to the purpose of this amendment. Up until now section 16 of the Reserve Bank of New Zealand Act has enabled the Reserve Bank to deal in foreign exchange. The current provisions enable the Reserve Bank to deal in foreign exchange with any person it thinks fit including the Crown. That makes sense. It makes sense that the Reserve Bank should be able to deal in foreign exchange with whomever it thinks it makes sense to deal in foreign exchange with although it should do so very carefully. 
But what is curious about this amendment in clause 6 is that it provides also for the Reserve Bank—and it actually amends the provision—to deal with any person including the Crown. That is fine; that is the existing provision. But it then adds a further provision providing for the Reserve Bank to deal on behalf of any person including the Crown. Why do we want the Reserve Bank to be able to deal on behalf of any person? That means the legislation is providing for the Reserve Bank to become a significant currency trading agent. I am a person under the law. Presumably if I wanted the Reserve Bank to deal in foreign currency on my behalf this provision would allow that to take place. The Reserve Bank could do that. 
I am curious as to why the Government wants the Reserve Bank not only to be able to deal with any person including the Crown which the current law provides for—and I have no problem in dealing on behalf of the Crown because after all the money the Reserve Bank is playing with is really Crown funding at the end of the day although technically there are probably issues around what is Reserve Bank money and what is Crown money—but also to be able to deal on behalf of any person. I think it would be of interest to learn from any further Government speakers on this first reading as to why that provision has been put in there. 
I also note in clause 7 that the Reserve Bank will now be required to hold higher levels of foreign reserves than in the past. Presumably that relates to this new provision in clause 6 that enables the Reserve Bank to become a greater currency trader than it is at present. Again I think the select committee will want to examine these clauses. I am not sure there are many knowledgable people in New Zealand who argue that the Reserve Bank should get into more currency trading than it has. Sure banks like that of Singapore with massive reserves behind them have been perhaps fairly successful in intervening in currency markets but there are huge risks around that so National will want to learn a bit more about clauses 6 and 7. 
Another clause we will want to learn more about is clause 10. Clause 10 inserts new section 68B which will enable the Minister to give the Reserve Bank directions. It is not immediately clear to us why this should be required in relation to the bank’s regulation of finance companies. One would think that the regulatory framework would be something independent of political interference. It is not immediately clear to us why the Government sees the need to be able to direct the Reserve Bank in respect of Government policy in this regard. 
We will want to learn more about this because the last thing we need is what is meant to be an independent regulatory environment becoming one that the politicians—the Government—can start to meddle with. We know from past experience in this country that when Governments meddle in what are meant to be independent regulatory frameworks they have not produced great outcomes. I am not being partisan; I think our history shows that Governments from both political flavours have meddled in the past to the detriment of this country. We will want to learn more about why the Government wants that power to give directions about Government policy objectives as we have concerns about that. 
Although we want to learn more about certain of those provisions National does support the overall policy intent of what this bill sets out to do. However at the select committee we will want to explore some of those matters that cause us some concern.