Williams Andrew: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third ReadingText is incorporated into the Bound VolumeWilliams Andrew: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15014. Text is incorporated into the Bound Volume.]ANDREW WILLIAMS (NZ First): I take a call on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill on behalf of New Zealand First. New Zealand First will be supporting this legislation. Covered bonds go back to the 1700s. Denmark was the first country back in the 1700s to issue covered bonds so they are a very old form of financial security and an old financial tool. More recently of course they have been a major tool used by European banking but in more recent times the likes of the United States Department of the Treasury introduced them in 2008 and the Australian Treasury introduced them in 2010-11.New Zealand banks were the first in this part of the world to actually start using covered bonds which was back in 2010 but they did not have the legislative framework to work within which is the purpose of this bill—to actually give them that legislative framework to cover those bonds. Covered bonds are debt securities that are backed by cash flows from mortgages or public sector loans. A covered bond is a corporate bond with one important enhancement: it has recourse to a pool of assets that secures or covers the bond if the originating financial institution becomes insolvent. In this day and age in the world that we live in it is increasingly important that we do have these guarantees put in place to ensure a stable and reliable banking system. In this respect the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill does help to bringNew Zealand into line with many of our major trading partners—in particular Australia the United States and many of our trading partners in Europe and Asia.We did have some reservations as to why New Zealand was adopting the 10 percent maximum number of covered bonds as compared with Australia on 8 percent. In this House in Parliament and throughout legislation we are regularly referring to the fact that we need to harmonise as much as possible with our major trading partner Australia. When so much of our banking financial interests are trans-Tasman it is somewhat puzzling as to why we would not simply adopt the same 8 percent level as Australia and that we would have a higher level. That still has not been adequately explained. Countries such as Canada as we have heard are as low as 4 percent. It does beg the question as to why New Zealand would go to a much higher level. At the end of the day should a bank fail it means that these covered bond holders have preferential call over other investors in the bank other depositors in the bank and therefore we would not necessarily want to see the first 10 percent of any failure in New Zealand go offshore to international investors first perhaps before mum and dad investors in New Zealand. So I think this still does need to be addressed and I think it would be wise if the Minister could fully explain the reasons why that decision was made to go with the extra 2 percent.But basically this is another means of tightening up the New Zealand financial system. We saw 61 financial institutions go by the wayside in recent years through an appalling period of New Zealand’s financial history—the likes of South Canterbury Finance with $1.6 billion going down the tubes. That was picked up by the New Zealand taxpayer. That sort of thing cannot be allowed to repeat in the history of New Zealand. This bill is a mechanism to provide greater controls in this area more certainty about investment and more certainty about a major investment in this country. We are seeking greater investment in New Zealand. This is one means of encouraging more investment in New Zealand by international institutions. Therefore New Zealand First believes as it always does that if there are improvements to our financial system and improvements to our economy then it can only be a good thing. New Zealand First supports the bill.