Wood MichaelMICHAEL WOOD (Labour—Mt Roskill): I'm very surprised to be able have the opportunity to speak on this bill in the House this evening—surprised that the Opposition hasn't taken the opportunity to elucidate on the benefits of this bill which they do support. Members across the House on the select committee actually work quite hard—on the Finance and Expenditure Committee. While it's been pointed out that this is a relatively uncontroversial bill that doesn't mean that it was a bill that members of the House have not had to engage in. Members of that committee actually spent quite some time taking a range of submissions many of which were very technical in nature from the financial services sector and other interested parties and engaging with officials on the detail of this bill to ensure that it was fit for purpose.But none the less like a hungry hound with the scent of some very tasty meat in its nostrils here I am with the opportunity to say a few words on this bill. I want to commend my colleague Duncan Webb for his speech just now. It was a bit derivative though I thought of some of the other speeches—but it was by some margin better than others as well.This is a very important bill and it actually speaks to some of the Government's core priorities. This is the Government that believes in a strong economy. This is the Government which believes in getting on with the job of ensuring that we have a stable financial and economic system so that Kiwi businesses can prosper. And while I know that at first blush when people look at pieces of legislation like this they can go a little bit cross-eyed the ability of our financial institutions and others within our system to access debt on world financial markets ultimately is important for our economy to continue as we would wish it to and for businesses further downstream ultimately to get access to the credit that they need to be able to function.This bill does two important things which are actually quite discreet. They're tucked into the same bill but they come from different international requirements. And it's worth pointing out at this point that the bill is absolutely crucial. These effectively are requirements if we want our financial institutions to continue to be able to access debt on international markets.The first requirements really come out of the G20 and this is around the requirement to provide margin or real collateral in the event—well to cover for the possibility of default securing when the derivatives are traded. This really goes back to that very difficult period in the international economy in 2007-2008 when our international financial system virtually collapsed. It virtually collapsed and the consequences of that were dire. Now many of us felt quite frankly a lack of sympathy for many of those institutions because of the way that they behaved and the absolute greed and recklessness with which they conducted themselves at that point.But the point of the matter is that however one might feel about the impact on those institutions at the time the downstream effects on the real economy were absolutely horrific. The entire world entered into a period of significant recession—as significant as the recession that we saw after the 1929 stock market crash. And that meant real impact on the lives of people around the world and here in New Zealand. We saw unemployment—which I'm happy to say under the previous Labour Government had reached a record low of just 3.4 percent—roughly double as a result of that global financial crisis (GFC). We saw businesses fold. I remember at that time in the aftermath of the global financial crisis driving around my community in Auckland and there were just empty shops empty factories empty businesses everywhere. That wasn't the fault of the people in those businesses but it was a direct consequence of what happened in that global financial crisis where some of the wide boys in these big institutions were playing fast and loose were lining their own pockets were behaving recklessly but it had an effect on the real people.That is why these changes are important: because they are fundamentally about the response that certain international institutions have had to ensure that we build a more robust international financial system. That doesn't eliminate the risk of that occurring again—because quite frankly that is impossible—but does at least significantly mitigate against the risk of that happening again. So those first sets of requirements have come through from the G20. New Zealand is obviously not part of the G20; our close neighbours Australia are. But that's been a very important forum for developed economies to come together to look at how we strengthen the global financial system to mitigate against these risks as much as we can. In essence what we see in Part 1 is the requirement that people who are engaged in derivatives trading do provide that margin that kind of real collateral putting some real skin or some real asset in the game so that in the event that a derivatives trade goes wrong there's actually something real to fall back on. What we had in the in the period of the GFC was a contagion effect where a whole lot of things went wrong in that global financial system in one or two major institutions and because they were also linked up because of these trades in the derivatives market it spread like a disease would spread through the body. But in this case it spread through the global financial system and rippled through. We had major trading banks all around the world starting in the US and in the United Kingdom going under. And that's where the damage was done.Now the challenge in this case is that some of our domestic laws already put obligations on parties who might be engaging in these trades in terms of where any collateral might need to go. And actually what we need to do in terms of the regulations the G20 has put in place is make sure that that collateral is available to the parties in the event that something goes wrong. As my good colleague Dr Duncan Webb pointed out one of the important features of this is that there's quick access to it. That again is about dealing with that contagion factor. If you go for days and days and days and these contracts are effectively unwinding you get mass panic mass loss of confidence and that's when things really spread and get very very ugly indeed in the international financial system. So that's why that first change which is captured in Part 1 and comes out of G20 regulations is so very important.The changes in Part 2 come from our good friends in the European Union. This is part of being part of a globally connected economy. The EU is one of those places that we do often look to for being a place of public-good regulation. The EU has often been a bulwark in my view against the excesses of corporations in the global economic system who simply want things their own way who don't particularly think about the public good. They simply think about maximising private profit. It's often EU regulations—and we can think for example about some of the significant work they've done in the space of social media regulation recently; and New Zealand's played its part there with the Christchurch Call as well. But in this area it's the EU who's actually looking really closely at regulating these international financial markets to mitigate against the risk. And let's not forget that if that risk becomes real and if those big losses occur in the international financial sector there's an impact on the real economy.But who carries the can? Who carries the can? It's not actually the big boys in the glass towers in the international financial institutions; they'll generally find some nice little bolthole to go into. It's generally the public purse and across the globe at the time of the global financial crisis it was Governments who had to bail out these companies and often had to buy up the banks. Here in New Zealand we had our own version of that when we had to buy up a number of the second-tier lenders who had been greedy and reckless in that period—South Canterbury Finance is a prime example. So we need these strong regulations in place so that we don't have the situation of extreme private profiteering effectively underwritten by the public purse and ultimately the taxpayers.In respect of Part 2 what we're talking about here in particular is the manipulation of financial benchmarks and these are the benchmarks—these are the indices—which have a very significant effect in terms of setting interest rates. We had the LIBOR scandal in the United Kingdom some years ago where it was found that financial institutions—and while they were called rogue traders" I think it was actually more systematic than that—were manipulating those rates to maximise the profits that their institutions could make by making quick trades on the basis of small differences in those margins. A similar scandal emerged in Australia some years ago as well. So the regulations which come out of the EU basically put in place much stricter regulation of those interbank rates and that's incredibly important.It's an important piece of legislation. I'm pleased that surprisingly I've had the opportunity to speak on this. I again say that I'm surprised that the Opposition who generally consider themselves to be very financially literate and across these kinds of things haven't taken the opportunity. This is the Government that's getting on with the business building a strong economy and putting in place the legislation that our economy needs to thrive. I'm so very pleased to finish this debate by commending it to the House. Thank you Madam Speaker.Bill read a second time."