English Bill: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
English Bill: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6039] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Crown Retail Deposit Guarantee Scheme Bill be now read a first time. 
 I am sure the House will recall the circumstances of October last year when we faced a financial crisis on a scale not seen in New Zealand since probably the Great Depression. Despite the fact that New Zealand’s financial system was relatively sound because it had avoided many of the risky practices that triggered the financial crisis associated with the collapse of Lehman Brothers last year we are part of an interconnected world and were unable therefore to avoid the impact of a global meltdown in confidence in the financial system. One of the immediate challenges for New Zealand at the time was that the access to overseas markets that had traditionally and consistently funded our borrowing needs dried up. We were put in the position of relying on our own savings more than we had done for many years and as has often been remarked upon in the House those savings are not significant. 
The Australian Government decided at very short notice to guarantee retail deposits—that is deposits made by members of the public and by banks—and it did so alongside many other countries. The global process was started by Ireland. There was a considerable risk that New Zealand’s financial institutions could lose some of their domestic deposit base to Australia. The actions taken by the Irish Government triggered a whole raft of guarantees from Governments around the globe for precisely these reasons. At the time the New Zealand Parliament had been dissolved for the 2008 general election and the Government of the day established the existing guarantees scheme using the powers available to the Minister of Finance under the Public Finance Act 1989. This scheme provided assurance to depositors in New Zealand financial institutions during a period of great uncertainty and at a time when New Zealanders had seen pictures on TV of bank runs in the UK. 
It is good that the world’s economic and financial outlook is improving slowly and that the risks facing New Zealand’s financial system are abating. Perhaps it would be more correct to say that the sense of crisis has passed. There is still a long way to go before all the consequences of the financial meltdown work their way through. We have not returned to the benign environment that existed before the global financial meltdown. Economies are fragile and asset markets can at best be said to be stabilising but there are some asset markets where that is still not the case. The case to continue offering a Crown guarantee is finely balanced. 
The introduction of this bill recognises that non-bank deposit taking institutions are a significant feature of New Zealand’s financial system. One has only to witness the pain that has occurred for the many New Zealanders who lost deposits invested in finance companies. The country needs a non-bank finance sector that will lend to the small business that wants to buy a ditch digger. Loss of confidence in financial institutions would severely undermine the recovery that we look forward to and we cannot afford to take that risk at this time. We need certainty for financial institutions that provide vital funding and savers want certainty that investments are safe. However the Government recognises that guarantees can encourage unwarranted risk-taking among financial institutions and that guaranteeing deposits carries an ongoing economic cost. 
The Government has faced the issue of how to exit the scheme with the least cost to the economy and to taxpayers who have to pay up when a financial institution covered by the guarantee goes under and to balance this with the least disruption to the finance sector. We consider that extending the scheme from 12 October 2010 until 31 December 2011 on tighter terms is the appropriate trade-off to address the issue while still providing adequate certainty to the financial sector and those who rely on it. Accordingly the Government has introduced the Crown Retail Deposit Guarantee Scheme Bill under urgency to extend the Crown retail deposit guarantee scheme in order to provide certainty as soon as possible and to avoid undue disruption to the country’s financial system. I commend the bill to the House.