Robertson GrantRESERVE BANK OF NEW ZEALAND BILLSecond ReadingHon GRANT ROBERTSON (Minister of Finance): I present to the House a legislative statement on the Reserve Bank of New Zealand Bill.DEPUTY SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon GRANT ROBERTSON: I move That the Reserve Bank of New Zealand Bill be now read a second time.This is the second in the trilogy of Reserve Bank pieces of amendment legislation that have been worked on over the last 3½ or so years. To recap for those who haven't been following along at home closely the first of those pieces of legislation was the one that modernised the objectives of the Reserve Bank. This was that they maintained their core objective of price stability but we added to that the objective of achieving maximum sustainable employment—a very important shift to recognise those key indicators in our economy are all about the health of our economy. We also changed the decision-making processes around the monetary policy work of the bank to have a monetary policy committee which is relevant to this bill as I will talk about in a moment.The third bill which is beginning its work and we have released information about is the deposit takers Act. That is a piece of legislation that will have some significant changes to the way that banks are regulated but in particular it will introduce a deposit guarantee scheme to New Zealand something that we have not ever had; something that is beyond time for us to have. That is in the future. For today we have the second as I said of the three pieces of legislation and as much as anything I would describe this as the institutional Act. This is the Act that is about how the Reserve Bank operates in order to achieve its objectives in a modern way and creates a series of changes that I will work my way through. Before I get too deeply into that though I do want to thank the Finance and Expenditure Committee for their hard work in putting this bill through. All members of the committee contributed and while there were some issues on which there was not able to be found agreement I think that overall the bill is improved for the work that the committee did as it worked through it.As I said primarily what this bill does is create institutional arrangements that give effect to the overarching purpose of the bank and that is to promote wellbeing and a productive economy as well as the specific economic financial policy and central bank objectives that the Reserve Bank contributes to. The bill ensures that the bank can operate efficiently and with legitimacy and will continue to do so into the future. At its core it has a number of key provisions. The first of those is the establishment of a proper governance board for the bank and as a result the strengthening of its accountability. The change to this is significant. It fits with the change made in the monetary policy committee and in their role and it makes it consistent with the way that Crown entities work in New Zealand and also the way that central banks and regulators tend to work around the world. As a result of this the powers and responsibilities of the Reserve Bank other than monetary policy will now sit with the board rather than the governor alone. This is a shift as I say that's consistent with what we've done with the monetary policy committee to create a committee-based structure to move away from that single decision-maker model.The kind of board arrangements we're talking about are familiar in the sense that it looks like a Crown entity board but it is one that obviously has some differences to it. One of those differences—and it was the subject of discussion at the select committee—is around the membership of the governor of that board and it is a pretty unique set of circumstances for a Reserve Bank Governor or a central bank governor and therefore that is reflected by the fact that they are actually a member of the board. This is again not unheard of or not uncommon in terms of other central banks around the world to have the governor as a member of that governing board. I personally don't think the way we run monetary policy the way we run financial policy in New Zealand would work if the governor was not a member of the board but correctly the committee analysed this idea quite closely and came up with some provisions that support how the governor can fulfil that role. Secondly the bill reframes—and this is an important change—the financial policy objective of the Reserve Bank and that is to protect and promote the stability of the New Zealand financial system. This is a clear mandate and it's one of the things that arose out of the consultation—and a great deal of consultation publicly was done on all three bits of this legislation—to give absolute clarity for the Reserve Bank to deliver on its role as New Zealand's prudential regulator. It is consistent with best practice. It's consistent with the guidance that the International Monetary Fund gave to the previous Government actually in 2017 when they did their assessment and I do believe that clarity of that objective will be helpful to the bank into the future.There has been some criticism of this aspect of it because of where the concept of efficiency sits within what the bank does. The advice again internationally here is that efficiency being in a primary objective like that is not necessarily normal—that efficiency is better delivered via the way in which the bank goes about its work. In particular in the case of this that will be the deposit takers bill and then Act and the various insurance and prudential work that the bank does. That's where efficiency is best reflected. Having that clarity of objective of protecting and promoting the stability of the financial system I believe is the correct approach.Other major and significant elements in the bill include the creation of a financial policy remit. So this is to mirror what we do on the monetary policy side. Everybody is familiar with the monetary policy remit which again is a creature of the first piece of legislation we did last term. People previously called it the Policy Targets Agreement" but this is actually an understanding and agreement between the Minister of Finance and the bank about how they will operate.When it comes to financial policy rather than monetary policy financial policy has grown in the bank's responsibilities in a very ad hoc way. So monetary policy was the core of what the Reserve Bank does and is still the core of what the Reserve Bank does but iteratively over the 30 years that the Act has been in place the bank has adopted a number of financial policy roles in our system. It is important that there is a very clear understanding between the Government of the day and the bank about how financial policy will be delivered and that is what the remit is about. It is not a direction; it does not affect the bank's ability to independently determine its strategic intentions and financial policy. However just as they do with monetary policy they need to have regard to the Government's policy priorities and intentions. I think the remit will provide a great deal of certainty.Another critical element that I want to mention here today is that the bill provides for statutory recognition of the Council of Financial Regulators. Again this is something that is important I think for a proper functioning coordinated financial system in New Zealand. The Council of Financial Regulators includes obviously the Reserve Bank but also the Financial Markets Authority the Commerce Commission and the Ministry of Business Innovation and Employment in their regulatory role. Between those agencies they play a critical role in making sure our financial system has integrity and has consistency and I would like to see the Council of Financial Regulators play far more of a role in providing that coordination. What we do in this Act is ensure that they now have a statutory function for that coordination work that they do and I think that will strengthen the financial system as well.As I said I'd like to thank the select committee for their work and Dr Webb for his chairing. I'd also like to thank the 21 submitters who took the time to submit on the bill. For some reason or other the Reserve Bank Act doesn't seem to make the headlines! I cannot understand why! It is something that I think we need to see more of in the news but those 21 people have made a significant contribution to it and as I say some changes were made including as I mentioned earlier that the governor becomes a member of the board. The Minister can direct the bank to maintain a minimum level of capital. The bank needs to request new functions before the Minister can direct the bank to perform those new functions. That's an important part of maintaining the operational independence of the bank and that there is an ability to amend the monetary policy remit without an Order in Council. That was really an interesting change that the committee has made based on what's actually occurred in the time since we created the initial monetary policy remit in legislation last term.So I think this is a strong and important part of our framework of financial policy backing up the monetary policy changes we've made. I think it will give the Reserve Bank the proper level of governance while maintaining its operational independence. I think it continues to respect the role of governor within a central bank and gives us now a clear framework for financial policy rather than the iterative way in which financial policy has found its way into the Reserve Bank's mandate. I thank the committee again for their work. I look forward to further discussion on this in later stages of the bill when we can get into the detail of a number of the changes but I highly commend this bill to the House."