Norman Russel: Non-bank Deposit Takers Bill — In Committee Third ReadingText is incorporated into the Bound VolumeNorman Russel: Non-bank Deposit Takers Bill — In Committee Third Reading[Sitting date: 19 November 2013. Volume:695;Page:15039. Text is incorporated into the Bound Volume.]Dr RUSSEL NORMAN (Co-Leader—Green): I rise on behalf of the Green Party to speak to the Non-bank Deposit Takers Bill and to echo many of the sentiments expressed by Clayton Cosgrove who I thought made some really good points. The thing that people probably do not realise about this pretty obscurely named bill the Non-bank Deposit Takers Bill is that essentially it covers three entities: finance companies credit unions and building societies. People will be very familiar with the finance companies. The finance companies are of course the companies that collapsed and cost taxpayers many hundreds of millions of dollars as they had to be bailed out. I will get back to that particularly South Canterbury Finance where the bailout was mismanaged by the current Government.Finance companies are a very different kettle of fish to the credit unions and building societies but they are all being regulated together under this one piece of law the Non-bank Deposit Takers Bill or Act as it will become. That is a problem. It is a problem because credit unions and building societies have a very different risk profile to finance companies. In the Reserve Bank’s report that was delivered very recently about the review of the non-bank deposit taking sector there was some discussion of those differences. I think that this is a real missed opportunity to make sure that the regulation of the credit unions and the building societies accurately reflects the risk and performance of those two kinds of institutions which is fundamentally different to the finance companies.If one casts one’s mind back through the earlier part of this century and the emergence of the finance companies and the huge risks that the finance companies presented one sees that during all of that period all of our regulatory agencies completely failed. So you would have to say that the Reserve Bank Treasury and the trustee structure that was set up to provide oversight fundamentally and completely failed the people of New Zealand in providing adequate prudential supervision of the finance companies. The proof of that is the fact that the finance companies overwhelmingly—almost all of them—went belly up. They went bankrupt. At the end of the day it was the depositors in those companies and the taxpayer who ended up having to pay the cost of the fact that the finance companies went bankrupt.So it seems to me that we need to differentiate between those institutions the finance companies and their regulation and the credit unions and building societies which did not go belly up. But it became one of the mantras of the neo-liberal model of the 1980s and 1990s that one has light-handed regulation of things like finance companies. Unfortunately the Clark-Cullen Government was completely captive to the neo-liberal ideology as it applied to the regulation of the finance sector. It applied the same kind of laissez-faire regulation of the finance sector that has been the ideology from New Zealand since the early 1980s and that is why we ended up as taxpayers and depositors losing so much money because of the laissez-faire regulation that the Clark-Cullen Government continued through the early part of this century which meant that the taxpayer ended up having to pay the bill.This Government paradoxically a conservative Government came in at a time after the global financial crisis and has had to institute the regulation of these sectors but it is very much closing the gate after the horse has bolted. Most of the finance companies have already gone and so most of the institutions that are now being regulated by this bill which is a response to the failure of the finance companies are not finance companies. This is the paradox of the bill that we have before us. This bill is a response to the failure of the finance companies but this bill actually overwhelmingly regulates credit unions and building societies. So that is the paradoxical situation we find. So the incoming conservative Government had a complete overreaction and a poor response to the situation that we are in. We should actually have the regulation of credit unions and building societies done differently to finance companies because credit unions and building societies do not have the same level of risk associated with them. The proof of that is the fact that during the global financial crisis the finance companies went belly up but the credit unions and building societies did not. So instead of saying that we will have a differentiated regime we have just lumped them all in together into non-bank deposit takers.There is no question that we need to improve the regulation of the finance companies in particular so that is why we are voting for this piece of legislation. It is the right thing to do even if it is after the horse has bolted. Hopefully it will prevent a similar thing happening again. What it means is that there is a sea change in a kind of philosophy of regulation in New Zealand and a recognition that the failure—the complete and absolute failure—of the neo-liberal model of laissez-faire regulation has been recognised. I doubt very much that that is completely recognised by Treasury and the Reserve Bank particularly Treasury but certainly to some degree it has been and that is a good thing. But lumping the credit unions and building societies in under exactly the same kind of regulatory regime I think is a bit of a mistake and we need to differentiate. So in the implementation of this law given that it is going to go ahead it is very important that the Reserve Bank differentiates between the credit unions and the building societies on one side and the finance companies such as they remain on the other.Unfortunately there is not a great recognition that that will happen. We had the Reserve Bank in front of the Finance and Expenditure Committee a few days ago when I raised these issues and there was some acknowledgment of the issues but I do not think a great acknowledgment. There was also the issue of trustees which I think we really have to address. For people who do not know these non-bank deposit takers—finance companies credit unions and building societies—have trustees who are meant to provide supervision. What we know about the trustee model is that it is a complete failure—a total and absolute failure. The proof of the failure of the trustee model is that depositors lost millions and millions and millions of dollars and taxpayers lost millions of dollars because they had to bail the thing out. So given that the trustee model has proven to be a complete failure why are we continuing with it as if it works when we know that it does not? It has been proven that it does not work. The trustee model does not work in terms of providing prudential supervision of these companies. The proof of that is what actually happened. But we carry on and pretend the trustee model works. It does not work.Why do we not actually introduce regulatory regimes that have a better chance of working? For example in the review of non-bank deposit takers there was talk about treating credit unions and building societies more like banks and regulating them directly more like banks because a lot of their behaviour is bank-like. Why would we not regulate them more directly more like banks and in the process get rid of the trustees who are useless because they do not protect these companies from actingpoorly as we saw with the finance companies? By getting rid of the trustees at the same time we also reduce the red tape and the regulatory burden on the credit unions—a regulatory burden that the banks their competitors do not face. So if you are a credit union you have got to have this elaborate structure above you of trustees and so forth. It all has to be supported. If you are a bank you do not. Yet we lumber the credit unions with this elaborate regulatory burden that they totally do not need. Why do we not regulate them much like we regulate banks? Let the credit unions compete with the banks on a fair even playing field. Reduce the regulatory burden on the credit unions so that they can compete for deposits with the banks.I think that in the implementation of this regime it would be great to see the Reserve Bank recognise the reality of the difference between the finance companies and the credit unions and building societies. That is one of the fundamental problems of this legislation. We are supporting it because I think we need it but I think it is important as we go forward that in the implementation of the law we recognise the difference. I think that in the future we are going to have to change the legislative framework around credit unions in particular to recognise the actual risks associated with credit unions. I also think we need to acknowledge that the trustee model completely failed. It did not work as a way of actually preventing widespread failure of the finance companies. It was a failed model. None the less we will be supporting the legislation but we look forward to future improvements of the regulatory framework in this sector. Thank you.