English Bill: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
English Bill: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6112] 
Hon BILL ENGLISH (Minister of Finance) 
: 
 I move  
That the Crown Retail Deposit Guarantee Scheme Bill be now read a third time 
. We have had a reasonably wide-ranging debate on the bill and that was always likely to be the case despite the fact that the bill does not have a lot of the detail of the scheme in it. The Committee stage gave members the opportunity to work through most of the substantial issues that had been considered in bringing the policy together. 
The Opposition in the spirit of cooperation around this particular issue that we have followed for the last 12 months or so raised a number of quite reasonable points. I will respond in a very general way. A lot of the points that members of the Opposition made had merit. The Government made judgments on issues to do with coverage pricing and product exclusions based on the principle that we want to move back to normal market conditions in a reasonable time. I thank members for the quality of that debate. 
I will just remind the House of the general principles that are driving this bill. First we want to ensure that depositor confidence promotes system-wide financial stability. One of the advantages the New Zealand economy has enjoyed over the last 12 months is that it has retained financial stability. In part that is to do with the fact that although they were vulnerable our Australian banks were in good shape when the financial crisis came along. That was partly because of actions taken by the previous Government in installing the guarantees to ensure that confidence in their stability was maintained and partly because the wide range of tools that the Reserve Bank supplied to the financial system enabled it to get through the period of crisis into a period now of relative stability. 
The second principle driving this legislation is the need to minimise economic distortions and ensure well-priced credit markets. There is no doubt that the guarantee does create some distortions and an obvious one is the fact that deposits into our non-bank deposit taking sector actually grew or have grown during the time of the guarantee. I think anyone would say that in the absence of the guarantee that might not have happened. We need to reflect on the fact that one of the reasons for the financial crisis was mispriced credit risk. That is why it is important that in responding to the financial crisis we do not perpetuate for longer than necessary distortions in credit pricing. It is really important that we revert to normal market conditions where people who are making deposits and making investments are facing a realistic trade-off of risk and return. That is another principle behind the bill. 
The third principle is the need to do our best to ensure a viable non-bank sector in the future. A number of speakers through the Committee stage stressed a point that I think is important about how the four Australian banks dominate our financial intermediation. A large number of businesses and activities in New Zealand are not the natural customers of those banks and therefore the non-bank sector is important. One of the principles is to ensure that the non-bank sector consolidates and rationalises itself in a way that means at the end of the guarantee we have places where people can go to borrow money for their ditch digger truck or other business need that a bank will not necessarily respond to. I would keep in mind though that because of that demand it is likely that other players will come into the non-bank market. 
Finally we want to manage the Crown’s exposure in terms of fiscal costs. Any institution that fails under this guarantee imposes a cost on taxpayers and taxpayers deserve their interest in these institutions to be looked after with due care. That has ruled out options such as unilaterally or quickly withdrawing the guarantee in a way that could put taxpayers in the position of paying out hundreds of millions of dollars to institutions that fail. Those are the same hundreds of millions of dollars that we need to run our health services police force and schools so we are keen to ensure that the Crown and the taxpayer enjoy the potential benefits of an uplift in the economy where asset prices stabilise where confidence grows and where there is a realistic opportunity that these guarantees will not be realised. I commend the bill to the House.