Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
[Sitting date: 22 May 2012. Volume:680;Page:2258. Text is incorporated into the Bound Volume.] 
Reserve Bank of New Zealand (Covered Bonds) Amendment Bill 
First Reading 
Hon STEVEN JOYCE (Associate Minister of Finance) 
 on behalf of the Minister of Finance: I move  
That the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill be now read a first time. 
 At the appropriate time I intend to nominate that this bill be referred to the Finance and Expenditure Committee for its consideration.  
This bill is an important part of the Government’s programme to improve the resilience of the New Zealand financial system to volatility in international markets. Turmoil in financial markets over recent years has underscored that such policy needs to be an absolute priority for Governments. New Zealand banks depend on offshore wholesale markets to obtain funding. It is thus essential that the New Zealand banking sector has access to these markets on the same terms as banks in other jurisdictions. The Reserve Bank of New Zealand (Covered Bonds) Amendment Bill aims to support this objective. The bill applies in relation to New Zealand banks’ issuance of covered bonds although it makes provision for the framework to be extended to other entities such as non-bank deposit takers in the future should it become relevant to them.  
A covered bond is a dual recourse instrument under which bondholders both have an unsecured claim on the issuer and hold a secured interest over a specific pool of assets set aside by the bank called the cover pool. Covered bonds can be distinguished from senior unsecured debt instruments issued by banks where the bondholder is simply an unsecured creditor of the bank and also from mortgage bank securities where the bondholder holds a secured interest in the cover pool but has no claim on the issuer.  
The issuance of covered bonds by New Zealand banks supports the Government’s goal of improving the resilience of the New Zealand financial system to market volatility in a number of ways. First covered bonds provide access to an alternative investor base thus increasing the funding diversity of the financial system. This investor base is significant. The covered bond market is one of the largest debt markets in Europe. Covered bond investors also tend to be relatively longer-term investors such as pension funds and insurance companies. Secondly covered bonds are typically issued at a longer term than senior unsecured debt and hence provide a mechanism for banks to reduce reliance on short-term funding with its associated refinancing risk. Thirdly covered bonds have proved to be a resilient form of funding at times when other funding markets are inaccessible including during the global financial crisis. Aspects of covered bonds such as dual recourse to the issuing bank and the cover pool reduce the risk to investors making them more attractive to investors in uncertain times.  
Covered bonds can therefore contribute to financial system stability by reducing the probability of a bank’s default. They can also have a positive impact on the economy by supporting banks’ ability to maintain their lending activities if other funding markets tighten. However the issuance of covered bonds does have the effect of reducing the value of the asset pool that would be available to a bank’s unsecured creditors including depositors in the unlikely event that a bank failed. This is because those unsecured creditors would rank behind the covered bondholders in respect of the cover pool assets in a failure. This may therefore increase unsecured creditors’ losses in a failure. In order to minimise any potential impact on creditors and depositors the Reserve Bank has imposed a limit on banks’ issuance of covered bonds through the use of its powers to set conditions of registration. In this regard the value of assets that a bank may encumber in favour of a covered bond programme is restricted to 10 percent of the total assets of the bank. That balances the benefits of a lower probability of default with the need to minimise creditors’ losses should a default situation in fact occur.  
This bill establishes a legislative framework for the issuance of covered bonds. Internationally legislative frameworks for the issuance of covered bonds are commonplace. They are also a prerequisite for investment for some investors. New Zealand banks have been issuing covered bonds under contractual arrangements for the past 2 years. However a legislative framework for issuance would improve New Zealand banks’ access to the covered bond market and would impact positively on the credit ratings of covered bond programmes both of which would help to reduce the cost of issuance for New Zealand banks. In 2011 Australia passed legislation putting in place a legislative framework for covered bonds. In developing this legislative framework the Reserve Bank has considered international best practice as well as the views of stakeholders including issuers investors and the public. It is my understanding that New Zealand banks are strongly supportive of the framework’s introduction. 
The legislative framework introduced by the bill aims to provide legal certainty as to the treatment of cover pool assets in the event an issuing bank was to be placed into statutory management or liquidation. This legal certainty is provided firstly by requiring the registration with the Reserve Bank of covered bond programmes subject to the programmes meeting certain registration requirements. In this regard the key requirement is that the assets of the cover pool be segregated from the assets of the issuer by way of sale of those assets to a separate company referred to as a special purpose vehicle. 
The registration process also requires the issuer to appoint an independent cover pool monitor to the covered bond programme. This will help to improve investor confidence in New Zealand covered bond issues by providing independent verification of information provided by issuers in relation to the assets of the cover pools.  
The bill then provides certainty for registered issues as to the application of the law in relation to the assets held by a covered bond special purpose vehicle in the event an issuing bank is placed into statutory management or liquidation. The bill limits the application of these two regimes so that special purpose vehicles under registered covered bond programmes can continue to operate outside the statutory management or liquidation of the issuer. This provides certainty to covered bond investors that the failure of the bank that issued the cover bond will not undermine their rights in regard to the cover pool assets.  
Registration of covered bond programmes will increase the transparency of banks’ covered bond issuance and offer greater clarity for investors and depositors as to which assets are set aside for the benefit of covered bondholders. From the commencement of this all covered bonds issued by a registered bank will need to be made under a registered programme. There will be a 6-month transition period for the registration of existing covered bond programmes.  
In conclusion the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill will ensure New Zealand - registered banks continue to have effective access to the covered bond market reducing the likelihood of liquidity problems affecting an issuer and promoting the sound and efficient operation of the New Zealand financial system. I nominate that the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill be referred to the Finance and Expenditure Committee for consideration. 
Hon DAVID PARKER (Labour) 
: 
 Can I thank the Associate Minister of Finance Steven Joyce for his contribution and also the officials from the Reserve Bank who have briefed other parties including the Labour Party. They were fulsome in their briefings and answered all of the questions we could think of to ask at the time. The Labour Party will be supporting the first reading of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill and its referral to the Finance and Expenditure Committee. We recognise that the issue of covered bonds has become normal internationally. 
I think the Minister put the issue quite properly when he said that there is effectively a trade-off here between obtaining long-term sources of funds that can be cheaper and also longer in the term of lending to the New Zealand bank—and that is a good thing—and on the other hand the tension in that the creditor who has recourse through these special purpose vehicles to a group of securities held by the bank through a special purpose vehicle is effectively getting a secured interest in those particular assets that ranks ahead of unsecured depositors in the bank. In practical terms what that means is that the largely overseas lender lending to a New Zealand bank through a special purpose vehicle using covered bonds will have a preferential position in the queue should the bank go bust to the detriment of unsecured deposit holders. The trade-off that is to the benefit of the unsecured deposit holder in New Zealand is that it is less likely that the bank will go bung because it has access to covered bond markets that are deep in liquidity and cheaper in cost. The balance between those two objectives is sought to be achieved by this bill’s setting up a regulatory regime and putting a limit on the amount that can be issued by way of covered bonds which have this preferential security status compared with unsecured depositors. 
We were given advice by the Reserve Bank both in its briefing to us as a party and also in the financial stability hearing pursuant to which the Governor of the Reserve Bank was before the Finance and Expenditure Committee and the advice that we had on both of those occasions was that currently before this practice of covered bonds became more widespread there was very little secured lending to banks. Close to all lending was unsecured which would mean that on a bank going bust everyone had a scrap but everyone effectively had a pro rata right to a share of the asset and no significant secured creditors would have a right of access to the bank’s assets upon liquidation in preference to unsecured creditors. So this is a significant change in recent years. The New Zealand banks are starting to dip their toe in the water when it comes to obtaining long-term funding through covered bond markets overseas. 
There are a couple of other points I would like to make. One is that one of the reasons why this might be more important to New Zealand banks than to certain other overseas banks is that sadly in New Zealand over the last three decades we have witnessed a decrease in the proportion of our financial institutions that are both owned in New Zealand and actually financed in New Zealand. We have run a current account deficit for so long in New Zealand that we have lost ownership of a lot of our financial sector and that points to some fundamental problems in the New Zealand economy that this bill is not going to fix but that make this bill more necessary until they are fixed. The truth of the matter is that New Zealand has run a current account deficit for four decades. The level of that current account deficit has been more than additional capital investment in New Zealand. It has actually paid for consumption. And the current account deficit that we have when the value of our exports is not enough to cover the cost of our imports and our interest bill is every year paid for by a combination of selling New Zealand assets that were previously New Zealand - owned to foreign buyers and borrowing more money from overseas. Those are the two ways that normally a current account deficit is financed. And now that we have done that for four decades— 
Paul Goldsmith 
: Growth in the value of assets. 
Hon DAVID PARKER 
: Growth—sorry? 
Paul Goldsmith 
: The value of the assets as well. 
Hon DAVID PARKER 
: Well you can develop that point but essentially when we have a current account deficit and we are not covering the cost of our imports and exports then we have a problem. I do not think there really are many people who would disagree with that. You know New Zealand now has one of the highest rates of net international liability in the world. Indeed the countries that are as bad as us are a short list and they are actually not good company. They are Iceland Hungary Ireland Greece and Portugal. I think they are the only countries that have a worse net international liability position than New Zealand. That makes us very reliant on foreign credit lines into our banks and makes us vulnerable to credit squeezes in a way that we would not be if we had greater pools of savings in New Zealand rather than being reliant on overseas loans to New Zealand and overseas ownership of New Zealand assets. 
That background is something that should be highlighted here because it is that level of international indebtedness—our net international liabilities to the rest of the world—that makes New Zealand banks more reliant on overseas credit lines and therefore more likely to be needing to access these longer-term deposits from overseas investors into New Zealand who will have the advantage of these covered bonds which have some benefits to the New Zealand banking system and therefore also to unsecured depositors of New Zealand banks. 
I think for me one of the issues that we will be looking at at the Finance and Expenditure Committee from the Labour side is whether the limit on the amount that can be secured by a bank ahead of unsecured creditors should be set out in the statute or whether it should be left to Reserve Bank guidance. I do not know the answer to that offhand. I am sure we will get advice from the Reserve Bank. I am not sure which other officials will be advising that committee. But I do wonder whether there should be some statutory limit on the amount that can be the subject of these covered bonds which rank ahead of unsecured creditors. That is one of the issues that we can discuss at the select committee. 
But the more important issue for me is that we must take steps in New Zealand to redress this imbalance that we have in our economy where we do not earn enough from our exports to pay for our imports and interest. We must address it through improvements to our savings; through some improvements to our tax system to encourage export growth rather than growth of the speculative parts of our economy as well as some other measures like a research and development tax credit; and through addressing some of the fiscal pressures that are coming at us through the ageing population and some of the unrealistic settings that we have around our age of entitlement to superannuation. 
Those are some of the big issues that need to be tackled by the Government. Only Governments can change those measures just like only Governments can put in place this measure effectively. Businesses cannot do it for themselves and it is incumbent upon this Parliament to actually look at what is the cause of the loss of ownership of our financial sector over the last two or three decades. It is now largely Australian-owned. It is no coincidence that they have got better savings and a better tax system. They tax capital gains and remove the tax bias that favours speculative investment and as a consequence— 
Paul Goldsmith 
: Try and buy a property in Sydney. 
Hon DAVID PARKER 
: I beg your pardon? 
Paul Goldsmith 
: Try and buy a property in Sydney. 
Hon DAVID PARKER 
: I am not saying that property prices do not go up; no one suggested that Mr Goldsmith. But there is no doubt that the net international liability position of Australia is better than the net international liability position of New Zealand. 
Andrew Little 
: $1 trillion in industry savings. 
Hon DAVID PARKER 
: A trillion dollars in industry savings is the figure that my colleague tells me. That makes a difference. 
In closing the Labour Party supports this bill going to the select committee but we are interested as to whether the appropriate limit on these covered bonds is 10 percent and whether it should be enshrined in statute. 
TODD McCLAY (National—Rotorua) 
: 
 It is a pleasure to rise and speak on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. I want to go just briefly into parts of the bill and the importance of it. But I want to say to the last speaker in this debate David Parker who recognised that the Government needs to focus and do more around savings exports shoring up the economy and having less wastefulness in spending that that was a glowing endorsement of the hard work of the National Government over the last 3½ years. That is all that our work has been about: bringing up savings rates focusing on exports shoring up the economy through an extremely difficult time and getting rid of unproductive spending within that economy. Certainly New Zealanders recognised that only a few months ago.  
This is an important piece of legislation—a technical bill and not an overly exciting one but important—because it will give greater surety to investors greater certainty to banks and strengthen the role of the Reserve Bank when it comes to the role of these banks. The Reserve Bank Amendment Bill establishes a legislative framework for the issuance of covered bonds by New Zealand - registered banks again to provide greater clarity for these investors. Legal certainty will increase economic efficiency and financial stability because banks will not have to pay an uncertain premium which they otherwise would with uncovered bonds. They can have significant benefits for registered banks as a long-term source of relatively stable finance. 
 In fact stable finance is very important to New Zealand to New Zealand investors and to New Zealand businesses. Just look all over the country at the moment. The thousands of people who have mortgages are talking to their banks and shoring up those mortgages at record low interest rates in part because of the good economic management of this Government. New Zealand banks depend upon offshore wholesale markets for their funding and this bill will give greater certainty to them in these markets.  
A couple of the challenges that the current arrangements provide to our banks that this legislation seeks to address are that our banks are currently able to issue covered bonds using contractual arrangements—structured covered bonds. I note that in Europe and many other countries covered bonds have been issued under country-specific legislation frameworks for many years. In recent years most countries that have their banks active in issuing covered bonds have also implemented a legislative framework including Australia recently. This legislation will help bring New Zealand into line with these other countries and international best practice in this area.  
I look forward to this bill coming to the Finance and Expenditure Committee so that as the last speaker said we can hear from others about some of the more technical issues of this bill. But this gives certainty to New Zealanders that the Government is focused on what is important—on helping our banks to continue to deliver for them in a cost-effective and certain manner—and I commend it to the House. Thank you. 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 This bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill reminds me rather a lot of the Prostitution Reform Bill. 
Todd McClay 
: Tell us how David. 
Hon DAVID CUNLIFFE 
: I thought you might be interested and I am being quite serious here. It was probably the most difficult vote that I have cast in my 12 years here. The issue with this bill however is similar. There is a practice in the market place that many New Zealanders feel uncomfortable about. In this case it is covered bonds. Let us be clear about what a covered bond is. A covered bond is a vehicle by which large wealthy institutional investors get themselves to the top of the security queue and mum and dad investors go to the bottom because they do not participate in the special purpose vehicle that extends the guarantee to the big investor. This is a queue-jumping mechanism. 
David Bennett 
: That’s not true. 
Hon DAVID CUNLIFFE 
: It is absolutely true. And like prostitution the issue here is whether it is better to legalise it and regulate it because it exists or to pretend it does not exist. I might say that we have had quite an active debate within the Labour caucus about how we should handle this bill because as a starting point we are not enamoured of covered bonds. Covered bonds are not good for small investors at a time when we are trying to encourage mum and dad Kiwi to put their hard-earned savings if they can afford any into the banking system to build up national savings. We ought not to do anything that would undermine that. 
There is a counterargument and to be fair it is worth repeating it that covered bonds can extend the access of major banks to lower-cost offshore finance from large institutions that firstly might lower retail interest rates in New Zealand by passing on those lower costs which would be a good thing for borrowers or secondly might increase the margins of the bank which would be a good thing for the bank’s shareholders. But if the price of that is that mum and dad Kiwi face higher risk because they go to the bottom of the queue and their debt is overtaken by the security ranking of the guarantees to the special purpose vehicle then there is a potential equity issue. 
I want to compliment the official from the Reserve Bank of New Zealand—and I will name him Mr Ian Woolford—who has published the regulatory impact statement. In my view it is a very cogent and competent impact statement and it does set out the issues on both sides of the ledger here. What the bank notes is that the cover pool assets are sold to a separate legal entity which is the special purpose vehicle and it says in paragraph 8: “covered bonds do pose a risk to unsecured creditors. This risk arises as the assets to which covered bond holders have a priority right will not be available to unsecured creditors should a bank fail.” That is the key downside with this legislation. Then the question is if you are going to have legislation because you do not want unregulated covered bonds in the market and they are happening anyway which is the current parlous state of affairs in New Zealand then you had better regulate.  
The first question that arises is what the appropriate maximum level is. The Reserve Bank has looked at the publications of the ratings agencies which recommend around 10 percent as a cap so no bank could have more than 10 percent of its asset base in covered bonds. Yet we note that Australia has a lower level of 8 percent. We also note that the interests of the rating agencies will not be the same as the interests of the Crown if the Crown is here to defend the interests of mum and dad investors. One of the issues that Labour will be looking at when this bill is at the Finance and Expenditure Committee—we are supporting it as far as the select committee at this stage so we can hear the arguments—is whether that limit should be lower than 10 percent. It sure as heck should not be any higher. Should it be lower? What is wrong with 8 percent? What is wrong with 7.5 percent? What is wrong with 5 percent? We will be very interested to hear submissions on that issue.  
The second key issue is that if the justification for this legislation is to regulate covered bonds and to prevent their unregulated spread throughout the market what type of oversight should be provided? What type of regulation would be sufficient? I note that the regulatory impact statement deals with issues like asset segregation relating to whether there is a clean split between the special purpose vehicle and the other assets at the bank; the certainty of treatment in insolvency in section 2 of the regulatory impact statement; and the clarity around the powers of the asset pool monitor in section 3. I ask whether behind the monitoring of the asset pool the Reserve Bank or another regulatory agency will have sufficient reserve powers to hold the system accountable. 
Labour has not made up its mind yet whether it will support the bill beyond the select committee. That will depend on the nature and substance of the submissions and the advice that we receive but we will signal an interest in ensuring that the limit for covered bonds is set no higher than the workable minimum because we note right up front the trade-off with the interests of mum and dad investors. 
Secondly we will want to be absolutely sure that the three issues that the Reserve Bank has raised are sufficiently covered off and thirdly we will want to ensure that the Reserve Bank itself has sufficient reserve powers to make sure that the accountability in the chain is rigorous. If those conditions were met I imagine that our caucus could consider seeing its way clear to support the bill through on the grounds that we do not want an unregulated practice in the market but nor do we want sham regulations. We do not want the impression that we have cleaned up the Wild West but have a sheriff with no guns or with a popgun in the face of some of the largest most powerful institutions in the country. So that there is the argument. 
This is the first reading. We wish the bill well on its way to the select committee and we look forward to receiving submissions. I hope not just that those submissions will come from interested parties in the financial markets who have a pecuniary interest—that is they make money out of this—but that we also hear from the representatives of consumers and from savers because it is really important that the select committee gets the full picture. Thank you. 
Dr RUSSEL NORMAN (Co-Leader—Green) 
: 
 I rise to speak on behalf of the Green Party on the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. This bill establishes a legislative framework for the orderly development of a new debt market in covered bonds. Covered bonds are a type of mortgage-backed security with one significant difference and that is that the investor has a secured recourse to a pool of assets which is essentially a bunch of mortgages. That is the fundamental difference about covered bonds. If this bill makes its way through what it will do is this. The issuing bank would need to be registered in New Zealand. There would be oversight of covered bonds by a private third party—and the fact it is a private third party is significant—and clarification of the insolvency law should one of these special purpose vehicles actually fail. There would be—and I think this is quite important—a covered bond limit of 10 percent on the issuing bank’s asset base. So this is the fundamental of what has been established.  
One way to look at the development of covered bonds is that it maintains the flow of credit to New Zealand. It facilitates effectively what has become our national addiction to credit. So in that sense you could view it as part of the problem in that it is facilitating access to that credit. On the other hand this is where we are: we are running very large current account deficits. So we need to make sure that in order to maintain the stability of the financial system we allow access to this credit but that we also regulate it. Effectively what this bill does is provide a legislative framework for the regulation of this form of credit into New Zealand through the banks.  
As such because it does provide a form of regulation to covered bonds it should add to the resiliency of our banking sector. For that reason the Green Party supports it even though we have concerns. We were very thankful to the Reserve Bank for providing a briefing to us on the covered bond bill and we support the proactive stance of the Reserve Bank which is trying to provide some kind of legislative certainty around what is for New Zealand a relative new debt instrument. Of course this is not a new instrument from a European perspective; it is a very old instrument and it has been used successfully for many years. But from a New Zealand perspective this is a new kind of debt instrument.  
A significant flaw in the legislation which we really do have concerns about and want to discuss at the select committee is the reliance on market-based oversight of this market. Under this bill oversight of the market in covered bonds essentially is provided by private sector oversight. That means that rather than the Reserve Bank itself providing the oversight it is effectively in private hands. Covered bonds are not the kinds of mortgage-backed securities that lay at the heart of the global financial crisis. They are not exactly the same things as those kinds of mortgage-based securities but they do have many similarities. They do have significant similarities to the mortgage-backed securities that lay at the heart of the global financial crisis and for that reason we think there needs to be good oversight of these covered bonds.  
When you think about it if they do go up to 10 percent of the issuing bank’s assets we could be looking at a market of about $33 billion or so which is a significant market by New Zealand standards. The danger is that we create a market or a debt instrument that becomes too big to fail. And once we create an instrument that is too big to fail the danger is that the Government effectively has to end up bailing it out if we run into problems. We saw this of course with South Canterbury Finance where the Government ended up having to bail it out. But that is what happens when you have these kinds of debt markets or debt instruments that become so large the Government had no choice because it was too big to fail but to bail it out. We saw that with Treasury’s administration of the retail deposit guarantee scheme. One of the critiques of the Auditor-General in the way that Treasury administered the retail deposit guarantee scheme was that it failed to regulate it properly with the result—[ 
Interruption 
]  
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Order! I am sorry to interrupt the member. The cross-banter that is going on has got nothing to do with the debate. Keep it down. I would like to hear the member. 
Dr RUSSEL NORMAN 
: Thank you Mr Speaker. The issue with South Canterbury Finance and the retail deposit guarantee scheme was that effectively Treasury failed to monitor the scheme properly with the result that there was a cost to the Crown—maybe a couple of hundred million dollars on top of what it should have been. And the risk with the covered bonds the way this is being constructed by the Reserve Bank is that we may find ourselves in the same situation where we have developed a market that is too big to fail and effectively the Government has to step in. For that reason we think that it is important that there is independent Reserve Bank monitoring of this new instrument—these covered bonds—rather than simply relying on a market-based oversight or a private sector oversight which is the way that the model is currently being proposed.  
We know that in the consultation on this bill the trading banks had no appetite for Reserve Bank monitoring. Well I am sure they did not and that does not surprise me one little bit. However that does not mean that the New Zealand Government should not have an appetite for independent oversight of the covered bond market. And the reason we should have an appetite for it is that it could be us that end up picking up the bill if something goes horribly wrong with the covered bond market and it becomes a very very large and very expensive problem for the New Zealand Government as has happened previously.  
One of the lessons we believe of the global financial crisis is that market resilience is just as important as market efficiency. So although it is true that having more intensive regulation of this particular debt market may reduce some of the efficiency of the market by increasing some of the overhead costs in terms of administration which is entirely possible it might be that the trade-off in terms of having market resilience—making sure that we do not create a debt market that then becomes so big that the Government has no option but to step in to save it if it runs into trouble—may well be worth any extra minor administration costs that come with having better oversight of the market hence reducing its efficiency marginally. I would rather that we had a marginal decrease in the efficiency of this market by having better oversight but ensuring that we have greater resilience in the market given that at the end of the day given the size of the thing it probably will be the New Zealand Government that has to pick up the pieces if anything goes horribly wrong. We will be voting for this legislation. We look forward to the select committee debate. We thank the Reserve Bank for the briefing. 
PAUL GOLDSMITH (National) 
: 
 I am glad that the Green Party is supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. I am a little worried about references to minor administrative costs for regulation. Unfortunately costs involved in regulating banking are far more often not minor because regulators struggle to get ahead of what is a very complicated and fast-moving industry and the costs and the consequences of their regulations are often very very hard to gauge and understand.  
When we look at this bill New Zealand is a borrower and always has been really since 1840 if not before. It has been importing capital into New Zealand for most of its history. So access to capital is absolutely important to us and going out on the world market looking for capital imposes disciplines. Households have understood that around the country. People right throughout the country are reducing their debt and doing it carefully going through their household accounts working out what they need and what they do not need reducing debt and reducing their exposure and their risks in a dangerous world. This Government is also doing that. We are out there reducing our debt by getting the Government’s books in order working out what we really need and what we do not really need and trying our best to have a sound and sensible economic programme. It is a pity that councils around the country do not seem to be following the same pattern; I wish they would and I encourage them to be more focused on getting those debts back.  
Our need to go out in the world to vie in international markets for capital imposes those sorts of disciplines on us and we ignore them at our peril. New Zealand of course as a small country is responding to international trends and is always looking for new forms of debt and innovation in global markets so we can have access to the capital that we require for a lot that goes on in our economy.  
Covered bonds are a form of debt instrument issued by banks. New Zealand banks have been issuing covered bonds under contractual arrangements since 2010—for the last 2 years as we have heard. It is an old established way of raising money in Europe but relatively new to New Zealand and we are responding to the fact that Australia has moved recently to get a legislative arrangement around this side of borrowing. New Zealand really has no choice but to respond and follow. Covered bonds are a useful instrument for banks to be able to issue as they provide access to an alternative investor base that is typically interested in longer-term investment. So for this reason it broadens the pool of access to capital that we have at our disposal.  
Internationally legislative frameworks for the issuance of covered bonds are common. They are a prerequisite for investment for some investors. As I have said Australia has recently passed legislation and the lack of a New Zealand legislative framework is likely to put New Zealand issuers at a disadvantage and may impede our access to the covered bond market. 
 Why it is important is that at the moment although banks have been issuing these bonds for the last 2 years there is definitely a level of uncertainty as to how certain provisions of the Reserve Bank of New Zealand Act the Corporations (Investigation and Management) Act and the Companies Act would be interpreted regarding the assets in the cover pool in the unlikely event that an issuing bank became insolvent and was placed into statutory management. This legal uncertainty is likely to impact the quantity of covered bonds that New Zealand banks can issue and at times of stress it could increase the price that banks have to pay. This legislation is all about removing that uncertainty and providing some certainty as to the treatment of those cover pool assets in the event of an issuing bank becoming insolvent.  
The secondary objective of the legislation is to improve investor confidence in New Zealand covered bonds by providing independent verification of information provided by issuers on the covered pool assets.  
The Labour Party has raised the issue of the risk to unsecured creditors of these sorts of bonds and the risk is real so it has been the practice of the Reserve Bank since these bonds were introduced to restrict the level to 10 percent. I will be looking forward during the select committee process to testing that level and considering whether that is the right level. That is the appropriate time and process for the parliamentary system to rigorously work out whether the 10 percent restriction is the best way of doing it.  
This bill seems to me to be a remedy to a situation that has arisen in the last couple of years. It is about New Zealand getting access to the capital that it needs to grow. As I said New Zealand is a borrower on the world stage and that imposes disciplines upon us. The Government is responding to those disciplines and that is absolutely the appropriate way of doing it. Thank you. I commend this bill to the House. 
ANDREW WILLIAMS (NZ First) 
: 
 I rise on behalf of New Zealand First. We will be supporting this bill through its first reading and referral to the select committee. However we do have some concerns as have been voiced this evening in the Chamber. 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 and in the world that we live in it is becoming 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 bring New 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. 
Covered bonds go back to the 1700s. Denmark was the first country back in the late 1700s to issue covered bonds so they are a very very old form of 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 and that was back in 2010 but they did not have a legislative framework to work within which is the purpose of this bill—to ensure that our banks work to a legislative framework for those covered bonds.  
We do have some concerns in relation to the 10 percent level. Perhaps that level needs to be considered by the select committee. As we heard earlier Australia operates on the basis of an 8 percent maximum for covered bonds. That has to be given full consideration by the committee and perhaps even 8 percent is too high as we have heard. Perhaps the level needs to be lower but at the end of the day the size of the New Zealand financial market needs to be ascertained. What needs to be worked out is what the New Zealand financial market could sustain so as not to overly affect other deposits from unsecured investors and from our normal investors in our banks in New Zealand so that they are not severely or significantly disadvantaged. It is good that the Reserve Bank will be monitoring this and that it will ensure that there is offshore capital coming into New Zealand in perhaps a more secure manner and one where offshore investors will see New Zealand as an even safer place to invest money in when in the situation we are in at the moment there is global turmoil in many areas of banking.  
However I am concerned and New Zealand First is concerned that we have seen instances with financing troubles in terms of some of these types of situations with our banking such as South Canterbury Finance. After the Government provided the Government guarantee scheme for the financial institutions in New Zealand we saw many of those financial institutions taking a great deal more deposits into their respective organisations unfettered by the control of Treasury or the Reserve Bank. As a result during a period of time many of those financial institutions took on board significant deposits that subsequently failed and were a great loss to the New Zealand taxpayer. We must ensure that those sorts of failings do not occur again. Along with other speakers we therefore want to ensure that this covered bond market does not end up in the situation where offshore investors see this as a very very safe haven to put their money into—one that is guaranteed by New Zealand financial banks and institutions—only for us to find out that perhaps at the end of the day if something were to occur and they were to become insolvent we the New Zealand taxpayer or some form of New Zealand Treasury may have to come to their assistance to prop up the banking system. I shudder at the thought were that to occur so as a result when this bill goes to the select committee we certainly would be expecting that all these aspects are fully considered so that the New Zealand taxpayer the New Zealand Government is not put at risk through the covered bond schemes.  
However we are confident that this does add another tool another bow to strengthen our banking institutions in New Zealand so as to be competitive on the global financial stage. It will assist in terms of securing more capital into this country. Perhaps it might even be a situation where if so much more capital is flowing in here as a result it may alleviate the requirement of this Government to sell off State assets and other things to try to cover much of its funding with funds from elsewhere. It could well be that this situation is so successful that it provides other financial sources for our New Zealand banks to provide much of the necessary capital for the infrastructure within New Zealand for loans to the likes of local government and loans for the likes of infrastructure requirements within New Zealand without being a huge burden on the New Zealand Government and New Zealand Treasury.  
We will be supporting this bill through to the select committee but we will be requiring the Government to fully address many of the concerns that have been raised and in particular we will be wanting to ensure that New Zealand investors and New Zealand unsecured depositors in our banks are not in any way less regarded or given fewer advantages than those who would be under the scheme. We certainly do not want to see a situation where New Zealand investors are again left in the lurch. So we support this bill going to the select committee. 
Hon Dr NICK SMITH (National—Nelson) 
: 
 It is entirely appropriate in Budget week that the House is considering the first reading of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill because part of the Government’s agenda in the work that our Minister of Finance Bill English is doing is rebuilding confidence in the finance markets. It is part of a broader package— 
Andrew Little 
: When is that due to start? 
Hon Dr NICK SMITH 
: I see that Mr Little is interjecting. The challenge I have for Mr Little is this: when he was president of the Labour Party and Labour was in Government did he raise a finger— 
Hon Clayton Cosgrove 
: Oh careful. 
Hon Dr NICK SMITH 
: —for the tens of thousands of mum and dad investors who were burnt so badly in finance companies? The reality that Mr Little and Mr Cosgrove need to accept is that they passed over to this Government a basket case in terms of the management of our financial markets. Never in the history of New Zealand did so many investors lose so much because of the failed regulation of the finance companies that Mr Little’s Government was part of and what this Reserve Bank bill is about fixing.  
You see whether it is in terms of the growth agenda that this Government has around infrastructure regulation—and getting things right there—growth of our opportunities for irrigation growth in telecommunications in the work that Amy Adams is doing in the area of broadband work that the Minister for Primary Industries is doing in an area like aquaculture or work that is going on by David Carter in the area of the growth of our primary industries there is so much going on in the area of this Government’s programme of growing our economy of which this bill is a small part that I could give a speech well beyond the dinner hour— 
Hon Clayton Cosgrove 
: Oh please! We will move an extension of time this is so good. 
Hon Dr NICK SMITH 
: —it is such a comprehensive programme. Mr Cosgrove is interjecting. I invite him to reflect on his period as a Minister and the way in which he left a basket case for this Government. 
Hon Clayton Cosgrove 
: Oh! 
Hon Dr NICK SMITH 
: He interjects and asks how. Well let me tell you how. The very first report that this Government got on coming into office was that we were facing a decade of deficits in which we would see public debt grow out to over 70 percent of GDP. Over the 4 years since this is the ninth bill—the ninth bill—that has been introduced into this Parliament to tidy up the financial services sector. Let me give him a few examples. Take the new Financial Markets Authority. Every member of this House knows in their heart of hearts that we have had to provide far better controls over the finance companies of New Zealand. We have seen— 
Andrew Little 
: When did you call for that when you were in Opposition? 
Hon Dr NICK SMITH 
: I am sorry Mr Little? 
Andrew Little 
: When did you lead the march on Parliament to call for greater regulation of the finance sector? 
Hon Dr NICK SMITH 
: Oh well Mr Little who was the president of the Labour Party when we saw the— 
Hon Clayton Cosgrove 
: I raise a point of order Mr Speaker. Far be it for me to interrupt the robust nature of this member’s speech but this is the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill; it is not about who was president of the Labour Party or years gone by. This is a specific— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: I thank the member. I have indicated to the member to come back on track.  
Hon Dr NICK SMITH 
: This bill is about improving the regulation of the New Zealand banks. If members opposite do not think that is particularly relevant to the global financial situation I can only recite the words of our Prime Minister today about those guys on “Planet Labour”. They do not live in the real world of what we are facing and the importance for New Zealand of having a growing economy having jobs and building a brighter future for New Zealanders. Part of that work involves providing better regulation of our finance sector and of our banks and providing for this legislation dealing with covered bonds.  
I also want to say that an important part of this Government’s programme is ensuring a greater degree of consistency between regulation of the financial markets in New Zealand and Australia. It has been noted by previous speakers that in 2011 the Government of Australia passed legislation to provide a registered framework for covered bonds in the Australian market. With the degree to which the New Zealand and Australian banking systems are integrated it makes absolute sense for New Zealand to follow in a similar mould.  
Access to affordable finance is absolutely crucial to the growth of the New Zealand economy. You see if banks are able to provide greater security and greater degrees of confidence they are able to secure capital at a lower cost. The benefit to New Zealand business from that is that if we have a growing economy and if businesses are going to invest in new plant new buildings new equipment and new technology then the price they pay for that capital is important. That is where this bill contributes to the Government’s overall growth programme for the New Zealand economy.  
I say again that this is a sound bill. This is a bill that is part of a broader programme that the Minister of Finance has been responsible for in terms of getting our economy on to a substantial footing. I am pleased it enjoys the broad support of the House. It is the sort of legislation this Parliament needs to advance if we are indeed to secure that brighter future for New Zealanders.  
Hon CLAYTON COSGROVE (Labour) 
: 
 The debate was going quite well I think in a pretty non-partisan way but if you had listened to that previous speaker Dr Nick Smith you would think Labour was opposing the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. No we are actually supporting it. He probably has not caught up with that fact.  
I want to touch on a couple of things that Dr Nick Smith in his own unique way—in a sort of bout of political amnesia—neglected to say. Part of this bill is about oversight—in fact the core of this bill. One of the concerns we have is to ensure that there is appropriate oversight as these bonds are issued and as they go forward. We are in favour of independent Reserve Bank oversight. But I have to say that even when you regulate oversight can fail. I will not digress into the field of dreams that Dr Smith digressed into because this is a narrow bill but I will say this: a prime example where Government oversight failed completely was when this Government extended the retail bank deposit scheme which was— 
Hon Dr Nick Smith 
: It was your mess. 
Hon CLAYTON COSGROVE 
: Before the political version of Jack Nicholson gets on his high horse and blows a fuse yes my Government of which I was a part brought the scheme in. We brought it in on the day the Aussies told us they were bringing it in. If Dr Smith had half the sense that he purports to have he would know—because he just made a case for us to be in synch with Australia—that if we had not brought it in there would have been a flight of capital. But of course with Dr Smith one and one sort of makes one and a half. But the point I make is this. His Government came into power and extended the scheme. OK? I am not arguing the rights and wrongs of that. I simply say this: once the Government extended the scheme it did not monitor it it got gamed— 
Hon Dr Nick Smith 
: I raise a point of order Mr Speaker. 
Hon CLAYTON COSGROVE 
: Oh he does not like it— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Order! 
Hon Dr Nick Smith 
: The very member who is giving this speech took issue with my speech not being within the scope of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. There is nothing in this bill—and nor was there very little in my speech—about the Crown guarantee. The member is wanting to relitigate a debate about an inquiry in the Finance and Expenditure Committee not the bill. 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: There has been quite a wide range and I have allowed that. I keep very close watch on the time that members are speaking and whether or not they are actually speaking on the bill. When the member was speaking I did indicate to him to come back before there was the point of order. I am listening very closely to what the current member is saying. I invite the Hon Clayton Cosgrove to continue. 
Hon CLAYTON COSGROVE 
: Thank you. He does not like it. He has gone a bit troppo I think. The point I was making was this— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: I just ask the member to get on with the speech and how about cutting out the— 
Hon CLAYTON COSGROVE 
: The point I was making of course which Dr Smith sort of puts the old cheese in the ears on is about when National extended that scheme. This bill is about monitoring and the illustration I make is that sometimes monitoring fails even when regulated. Dr Smith who was in Cabinet when it extended the scheme went to sleep. It will be interesting actually in future to examine and ask questions around that scheme as to what the Treasurer knew what questions the Treasurer may or may not have asked—but that is for another day. But as a result of those Cabinet Ministers including Mr Smith not monitoring not engaging and asking the tough questions not monitoring that scheme they got gamed to the tune of $100 million of waste that they then had to clean up because people had extended their loans under National’s watch—sorry under its lack of watch. That is an example where monitoring does not—and he shakes his head—work. 
So we will support this bill going to the select committee—and I have only a couple of minutes before the dinner break—but we will be very interested in the regulations and the monitoring framework put in place. I agree with other members who have spoken colleagues from New Zealand First and others—as old “Rumpelstiltskin” toddles off—that of course we would not want to see a hierarchy where institutions as they will be under this bill have a higher situation than mum and dad investors in terms of a payout if something goes wrong. We would not want to then see a liability visited on the Crown which is the taxpayer. That is exactly what happened when these folks these galahs in Government extended the retail deposit scheme and then went to sleep. Financial institutions simply went in anted up borrowed more extended money out as fast as they could knowing there was a Crown guarantee. The thing about a Crown guarantee or any guarantee is that you have an obligation— 
The ASSISTANT SPEAKER (Lindsay Tisch) 
: Sorry to interrupt the honourable member but the time has come for me to leave the Chair.  
Sitting suspended from 6 p.m. to 7.30 p.m. 
DAVID BENNETT (National—Hamilton East) 
: 
 Thank you Mr Speaker— 
Hon John Banks 
: I feel a call coming on. 
DAVID BENNETT 
: Mr Banks just said he feels a call coming on so that would be interesting. This is a bill that tends to have the support of all members of the House at this stage which is very unusual. I think it is the first time the Green Party has actually voted with the Government— 
Kris Faafoi 
: Second time. 
DAVID BENNETT 
: Second time is it Kris? Well it is good on them and it is good to see them being positive about New Zealand’s future for once and supporting good moves made by a good Government in the best interests of the community. Even the New Zealand First Party the perennial knockers of the New Zealand public is voting for this bill as well so that is good to see. 
Hon John Banks 
: What happened? 
DAVID BENNETT 
: I do not know what has happened. They must be getting close to the Budget and wanting to be supportive of a good Budget that represents a good plan for a country going ahead. That is what I think is happening. They have seen the light. They have seen the brighter future and decided to be part of it.  
We are very fortunate to have the support of all parties in this House. I think it does represent the importance of the bill that parties do support it because a lot of people have lost a lot of money in the finance markets over the past few years and it is a very turbulent and delicate market at the moment with what is going on in Europe. So it is important that New Zealand has the best regulations that are possible to make sure that we secure the safety of that market for our banks our institutions our Reserve Bank our customers and our investors. This bill is an important part of doing that because it relates to something called covered bonds. Maybe that is the reason why we are getting New Zealand First and Green Party support for it—they like the idea of covered bonds; I do not know. It is something that the ordinary punter out there would not know of or have to deal with in their normal course of business but it is a tool used in our financial system. Most countries have structures around it. New Zealand does not so it is important that we do do so. It is important to give our financial system that security but it is also important for the simplicity and safety of investment in New Zealand.  
The covered bonds approach—I think there was one issue raised by Mr Cunliffe from the Labour Party in regard to it. He tended to look at the situation of covered bonds in a very extreme situation rather than taking into account the reality of how they are used. They are a device where the investors will know what they are getting into in the sense that it is a very well-used device around the world. There is that separate pool of assets called the cover pool—basically the unsecured creditors become secured over that base through taking a joint ownership in the risk on the bank. What we have done in this bill is we have clarified those situations and we have also put limitations on them so that they do not raise situations where there is an unusual amount of money that is invested through this process that would call into account the greatest ability of any institution.  
This is good legislation. It shows that the Government is proactive in looking after our financial sector so that we have a strong financial sector that enables the country to prosper and grow. It is pleasing to see the other parties in this House supporting it and hopefully that is a recognition that they see the importance of providing that stability to our financial sector going forward as well. So we look forward to it passing through the House. 
Mr DEPUTY SPEAKER 
: This is a split call. 
Dr DAVID CLARK (Labour—Dunedin North) 
: 
 I rise to speak to this bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill and Labour will support its referral to the select committee. We recognise the importance of having legislation in this area. It is an area that as previous speakers have mentioned banks have already dabbled in in this country. These bonds exist in New Zealand but they lack a regulatory framework.  
One of the debates that no doubt will happen when this bill gets through to the select committee as I imagine it will is the appropriate percentage that New Zealand sets for its regulatory framework. We have heard from the experts questioned at the select committee that different rates exist around the world according to perceived needs. Canada for example has a 4 percent rate for covered bonds. We can imagine the arguments that might be put in favour of having a low amount set in our economy and they might be to ensure that those other investors who participate in the sector are not put at the bottom of the heap at the expense of the big investors who rush in to take advantage of the covered bonds that put them at the front of the queue. We will look forward very much to hearing in the select committee from submitters who represent the unsecured interests that will be jilted down the queue as a result of this legislation proceeding should it proceed from the select committee through the House. There have been $6 billion worth of bonds issued over 2 years without any regulatory oversight. That is why Labour recognises this as an area that clearly needs to be addressed.  
The bill has been through two consultation processes with broad acceptance of the proposed legislation by most banks and bondholders. So we anticipate that the actual concept itself will most likely survive unless there are any issues raised that have not been raised in other jurisdictions or that specifically apply to New Zealand in the case of these bonds.  
During the select committee process recently in relation to the  
Financial Stability Report 
 I had the opportunity to ask the Reserve Bank governor some questions about this issue and his offsider related that the proposal of having a 10 percent level in New Zealand is indeed very similar to that which Australia currently has at 8 percent. So it seems a good starting point for a discussion. The question really in my mind should be: is that too high is that adequate or should it be brought down similar to the Canadian example that I cited earlier?  
I asked the question in that select committee about the effect on unsecured creditors—those who have already invested in similar investments and who may be affected by a subsequent issue of covered bonds. Those investors are the ones whom we certainly in the Labour Party will be concerned about in the progression of this legislation because we can be pretty confident that those institutional investors who are pushing for this covered bond market and the banks that supply them will make sure that their interests are looked after. The Labour Party will want to make sure that those unsecured creditors further down the track are not disproportionately disadvantaged as a result of legislation that is designed to make sure the banking sector has desirable offerings.  
The answer that I got was what one might expect from an expert in the field. The answer was that the basis for the limit is the fact that the more secured funding a bank does the more that potentially dilutes the interest of the unsecured creditors. It is a fact. So the answer was that if you left banks to do what they wanted they would have that in mind and so they would not want to have too much secured borrowing. But to be on the safe side according to the Reserve Bank it is recommending a 10 percent limit.  
As I said we support the basic proposal. We look forward to hearing from submitters on the merits of the level and indeed whether there are any snags that we have not spotted. That is why the Labour Party will be pleased to support this bill’s referral to the select committee. Thank you. 
Dr KENNEDY GRAHAM (Green) 
: 
 The Green Party perceives the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill to be a sign of the times. It is essentially a post - global financial crisis tourniquet applied to the failing patient that is the global financial system. What we are doing here is seeking to ring-fence uncertainty and bolster investor confidence where that confidence is flagging.  
All parties support the bill. The Green Party does not oppose the bill although in light of the excruciating appreciation from our colleague Mr Bennett I would be tempted if I had the time to go back to caucus. But we will steel ourselves and persevere. We do think the bill is necessary but we think also it is a sad metaphor for the financial plight we are all in around the world.  
What does the bill do? It establishes a legislative framework for the orderly development of a new debt market in covered bonds to the tune of 10 percent of total assets a covered bond being a dual recourse instrument for an unsecured claim on the issuing bank and a secured claim on a specific pool of assets. So if the bank goes into liquidation the creditor has an independent security on those assets. Those assets are to be held by a separate entity separate from the bank—a special purpose vehicle. What is in it for the bank? The bank does not have to pay an uncertainty premium and it increases the bank’s access to the covered bond market. This mutuality is expected to increase investor confidence. The facts are that in Europe there has been for some time a €2 trillion market in covered bonds. The US Canada and Australia have recently entered the market with New Zealand tagging along behind beginning issuing in 2010 without a legislative framework.  
I have listened with interest to the debate this afternoon and this evening. The difference to be seen is with National which claims that this bill will “give certainty” that there is a need for discipline and that there is a need and a wisdom to follow Australia and synchronise with Australia and to rebuild confidence. So there is an affirmation of financial confidence emerging from the National perception. From Labour we have the assurance that it is an understandable initiative that Labour will support but that it will not fix the main problem of the negative net international investment position where we are somewhere around the sixth-worst in the world and that it has given some Labour members at least considerable dyspepsia because it discriminates in favour of the larger corporates and against the mum and dad investors.  
The policy of the Green Party was determined and articulated by my colleague Russel Norman. We basically recognise the need for this bill in the current circumstances because it will establish a credit flow into New Zealand and it will increase the principle of financial resilience which now is up there with the principle of economic efficiency and we recognise that. But there is a flaw in this bill and the principal flaw is that the bill will emerge with a reliance on the private sector for oversight as in the wolves guarding the hen house. We will go into the Finance and Expenditure Committee intending to support the bill but with a strong concern that there needs to be independent monitoring by the Reserve Bank. The Reserve Bank has said it has no appetite for monitoring and we need to persuade the Reserve Bank to acquire an appetite. There needs to be independent monitoring in this bill and on that basis and with that expectation the Green Party will support this bill. 
MAGGIE BARRY (National—North Shore) 
: 
 I rise to speak in favour of the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. It is as the Greens and others before me have said indeed a sign of the times that we need such a piece of legislation. We need something that is going to regulate us. When you look at what has happened in Europe you will see that we are catching up really with the rest of the world by implementing a legislative framework around this. It has been done in Europe and it has been done in Australia. As we have heard from Labour the Greens and New Zealand First this is indeed a moment of rare accord—the first that I have seen as a member of Parliament coming up to 6 months now. Part of that is probably due to the Reserve Bank briefing which was substantial and detailed enough and able to answer the sorts of questions that come up prior to the select committee situation. I am on the Finance and Expenditure Committee so I look forward to debating with my colleagues across the House about the detail of this as to what percentage of course there should be limits on. I accept that Canada and Australia have done it differently. Maybe 10 percent can be argued through at select committee level; maybe not. I share also the concerns around unsecured creditors and feel that it will indeed be a robust discussion around the detail even though there is very broad-based recognition from everyone in this Chamber and all the political parties that we do need this piece of legislation.  
So really how much more is there to be said about this? We are coming into line with the rest of the world. It will encourage international investors to come here. In fact it would be a limiting factor to our ability to attract investors and so forth if we did not have it. It is an essential thing for us to do. Greater clarity for investors and depositors is something that this Government feels very strongly about. This piece of legislation is yet another example of legislation that Nick Smith detailed earlier prior to the dinner break. He detailed some of the other legislation that this is really part of for this Government to put through. It is important that we can do that and it is as I said refreshing to see almost universal approval for the bill with the caveats that have been mentioned by others.  
Under this bill as others have said the banks issuing covered bonds will have to register their programmes with the Reserve Bank and notify the Reserve Bank. Unlike some of the Greens for example I do feel that that is the appropriate entity to do that. I think that the Reserve Bank far from looking for the work would be the appropriate entity to do this and there really is not anyone else we could use in that way. I believe that with some of the detail to be still deliberated on the accord around this bill is excellent and I look forward to it coming before my select committee. I am very pleased to see Labour New Zealand First the Greens and everyone supporting it. It is a rare event and I sit down with that uplifting notion in my mind and look forward to it coming to the Finance and Expenditure Committee. 
Bill read a first time.  
Bill referred to the Finance and Expenditure Committee.