Salesa Jenny; Robertson GrantPart 6 Depositor compensation schemeCHAIRPERSON (Hon Jenny Salesa): Members we come now to Part 6. This is the debate on clauses 189 to 255 the depositor compensation scheme. The question is that Part 6 stand part. Hon GRANT ROBERTSON (Minister of Finance): Thank you very much Madam Chair. Part 6 covers the creation of the depositor compensation scheme and at the outset of this part I do just want to make a couple of introductory remarks. This is a very important part of this bill and a very significant change in New Zealand's history. We are one of very few countries in the OECD that doesn't have some form of depositor insurance or depositor compensation. Over a period of time through the consultation work that we did with the Reserve Bank Act review we have traversed the support for this proposal across both the banking sector itself and the deposit-taking sector itself and also among the public and there has been a strong level of support. It was interesting to note that at the beginning of the year when we had some issues in the United States with Signature Bank and Silicon Valley Bank my email bag started to fill up with people saying Where is the depositor compensation scheme up to?" My replies to all of those people has always been to stress that in New Zealand we have a very strong and robust banking sector. All of the things that we've just been discussing in the previous parts of this bill are all about the things that sit around our banking sector and make sure that it is robust. You can't set a bank up in New Zealand as easily as you can in some other jurisdictions and when you do set a bank up there are far more supervisory and enforcement provisions around that. So New Zealand does have a sound banking system but when the worst happens we need to give confidence to our people that their money will be safe. Again we know that in our history there have been times where there have been issues and people have turned to the Government quite quickly to say "Will you bail us out? Will you help us out?" What we need—and what became clear from the consultation that the public agreed with us on—was a scheme that meant that we didn't have an ad hoc response in those situations but we'd have a response that was always available always there and always giving confidence. So Part 6 creates that scheme. Subpart 1 is the various preliminary provisions to set up the scheme. Subpart 2 establishes the Depositor Compensation Fund which will be owned and managed by the Reserve Bank on behalf of the Crown. Under clause 198 the fund may be used for paying the depositor compensation scheme compensation paying the Reserve Bank's expenditure in connection with this scheme supporting a resolution measure in relation to a licensed deposit taker paying tax liabilities in respect of the Deposit Compensation Fund and to repay any money borrowed by the Reserve Bank where there is a deficiency in the fund. Subpart 3 provides for how the compensation for eligible depositors will be calculated and Subpart 4 sets out the Reserve Bank's rights in relation to deposits when compensation is paid to eligible investors. We have over the course of this bill gone a bit round the houses about what level of deposit should be covered and obviously we've landed on the $100000 protection. That will protect around 93 percent of deposits in New Zealand. It protects most people. If you think about it it's $100000 in each deposit so people could have a number of different deposits in different institutions that are covered. We felt that that struck a good balance. There are always issues with things like moral hazard here in making sure that we actually make sure that people take responsibility for their actions but equally we'll want to provide that level of protection to New Zealanders. Common schemes overseas—some of them have slightly higher levels of protection but we think this is the appropriate balance level for New Zealand. So this is a part of the bill that I think is extremely important and one that I'm very proud to present to the committee."