Groser Tim: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Groser Tim: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18215. Text is incorporated into the Bound Volume.] 
TIM GROSER (National) 
: 
 I will take just a brief call on Part 1. National is supporting this bill as one of a suite of bills designed to shore up some problems that have emerged in recent years. It has been a fairly technical bill. The reality is that as soon as we regulate one sector of the financial system we create by definition an incentive for others to operate outside the rules. This is known as the process of financial disintermediation. I note just in passing for those readers of the  
Dominion Post  
who saw the consequences of this reported on the front page just this morning that the collapse of some of the second-tier financial institutions we are referring to now has created a space for some fairly dubious new institutions to gain business. That is the reality of this process. It is a cat and mouse game between the regulator and the private sector. In the course of recent years we have discovered that the non-regulated second-tier sector we are addressing here has created some major problems for those involved. 
Part 1 attempts to put some precision around the definitions of the institutions concerned the governance structures and the actual requirements that the regulator—which will be of course the Reserve Bank of New Zealand—will expect of these second-tier non-bank financial institutions. In looking at the definitions in Part 1 my colleague Craig Foss has given an excellent overview of this issue and he has answered some other parliamentarians’ questions about the slightly strange term “non-bank”. As my colleague put it it has a very specific meaning in the law precisely because of the requirements that anyone who wishes to use the term “bank” must follow. 
I was not privileged to be a member of the Finance and Expenditure Committee during this process but it has put a lot of work into this bill. If members look through the tracked changes in Part 1 they can see—and I take this as just one example of many—the care with which the select committee has sought to define a building society unless the building society is a registered bank. Then if members look at new section 157 to be inserted by clause 11 they will find that there are consequential amendments in terms of the expected governance regime for that particular type of non-bank deposit taker that take account of the specific characteristics of building societies. 
I want to draw attention to a couple of other points in Part 1. New section 157F deals with the issue of risk. Parliament is making a bold statement here which is that eliminating all risk is not part of the deal. That is not an exact quotation which is in new section 157F(2)(b)(i) and states: “it is not the purpose of this Part to eliminate all risk in relation to the performance of deposit takers or to limit diversity among deposit takers;”. But we will never overcome the principle that we cannot legislate for common sense. I am sorry but that is the reality. We are trying to reduce some risk around this issue. 
I have always felt that the phrase “caveat emptor” was as cold as charity when it comes to this type of issue given the degree of financial expertise required on the part of any person who wishes to put his or her deposits and savings into an institution of this type. To expect them to be able to undertake on their own behalf the type of assessment of the risk is I think a bridge too far. So although I understand the reason for that old phrase “caveat emptor” I think that the reality is that we live in a slightly greyer world than this and we have had to respond in the manner set out in this bill. 
I will also focus on the question of the credit ratings which is also dealt with in Part 1. Clause 11 inserts new Part 5D and in that part new section 157I sets out definitions of appropriate rating agencies. That provision is perhaps a little more controversial. A bit of a judgment call was required here. There is no question that there is a role for this second-tier financial structure in our community in spite of the very sad collapse of certain non-bank deposit takers or finance companies in New Zealand over the last 6 months or so. I hope this bill will go some way towards illuminating the situation.