Cosgrove Clayton: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
Cosgrove Clayton: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6125] 
Hon CLAYTON COSGROVE (Labour—Waimakariri) 
: 
 I like a previous speaker Amy Adams have spent a fair amount of time listening to the debate on the Crown Retail Deposit Guarantee Scheme Bill. It is correct to say that the Opposition is supporting the bill. The previous Labour Government brought in the initial guarantee scheme in October 2008. High priority has to be given to the security of investments and to the stability of financial institutions within an economy. That is a bedrock principle. The Opposition though in supporting the legislation has raised a number of questions. If we look at the history of the initial guarantee scheme which the previous speaker said rightly was put in place on the eve of the last election we see that the overseas funding—the wholesale area of banking—was provided with a guarantee. Without legislation or regulation the then Labour Government negotiated with the banks to ensure that those guarantees extended to the retail sector and to mum and dad Kiwis. There is always a lot of criticism over regulation and legislation. Ironically this was an instance where negotiation occurred in extremely turbulent and volatile times and on the eve of an election. The banks after discussion and agreement actively participated in that retail space and mum and dad investors had their deposits guaranteed. 
The argument that we make here is about the question of what would have happened if the banks had not agreed to participate in that retail space. Who knows? I suspect as we have said in this debate that it would have been unacceptable—and it should be unacceptable today—that banks are given a cast-iron Government guarantee without the Government requiring a reasonable price. By that I mean that banks participate in the retail end of the market. The Government has guaranteed quite properly for overseas interests and overseas financial markets that provide equity and funding to our banking institutions that if the bank goes belly up then those international funds are guaranteed. Why is that? As I have said those guarantees are necessary in times such as we live in now to ensure that the money—if you like the lifeblood—flows through the veins of the financial institutions in respect of liquidity. 
What is missing therefore is a price for that Government commitment. I disagree with Mr Gilmore when he says this scheme will not benefit the shareholders of the banks. For goodness’ sake as a man who purports to be the resident genius of this Parliament in the commercial and in every other non-academic and academic area does he not realise—[ 
Interruption 
] Suddenly the National members are awake. Does Mr Gilmore not realise that any time a Government— 
Amy Adams 
: It’s very hard to stay awake. 
Hon CLAYTON COSGROVE 
: National members chirp away when it comes to giving a wee bit of stick but they do not chirp away when it comes to guaranteeing and supporting the average mum and dad Kiwi investor. 
Amy Adams 
: That’s what this bill is doing. 
Hon CLAYTON COSGROVE 
: Oh no! Bill English as the Minister in the chair sat there silent as if he were dead. He might be dead politically after today’s headline let me put it that way. 
National members are very chirpy when it comes to having a bit of a dig but when it comes to actually supporting mum and dad investors there is a deathly silence. Any time a Government gives a guarantee to a business or financial institution that is a huge point of differentiation from any other participant in the market. If I am an investor and a bank has a cast-iron guarantee of the Crown behind it of course I will invest in it before anything else. I could not lose could I? Why would I not invest in a bank that has a Government guarantee? I would be in a no-lose situation. Mr Gilmore should whip back to Canterbury University and to the remedial class for the MBA programme in the economics department dust off the textbooks and have another go. 
The problem in this debate is that the National members have reverted to type. They have backed the big end of town but when it comes to mum and dad investors they have not required a high price from the banks which is that they participate in the retail end of the market. We managed to do that not through legislation regulation red tape or bureaucracy but through partnership and negotiation. We put it on the banks. If they had not participated in the retail end of the market we may have had to look at other more formal mechanisms. But we got their agreement to do it and as a result mum and dad Kiwi investors had their deposits guaranteed. International financial agencies—lenders to our banks—had their investment guaranteed and like our Australian cousins we averted massive volatility instability and lack of confidence in our financial sector. 
Then we come to the progression of this scheme. As I say we support the bill but we raised yesterday and we raise again today the question of why the Government would not go to the banks and even attempt to negotiate their agreement to participate in the retail end of the market. What is the cost? The Government would not even get the banks in a room as we did and say that if it was going to put the taxpayers’ money on the line to back them they had to come to the party and back their deposit holders the mum and dad Kiwi investors. The Government could not be bothered. 
I raise that issue again because no one wishes for volatility and instability that could tip over a financial entity as we have seen in the past and put mum and dad Kiwi investments at risk. Nobody would wish that; nobody wants that. I accept that that is not the intent of the Government or of this side of the House. But the problem still exists. Why does the Government give the big end of town a gilt-edged guarantee and not give the small end of town—perhaps some of the young folks who are in our schools and who deposit money every day or every week through their school account—a guarantee at the retail end of the market? I say again to Mr Gilmore that any financial entity that has a Government guarantee—[ 
Interruption 
] The voice has gone up an octave. Any agency that gets a financial guarantee has a differentiation point in the market. An investor cannot lose so will back that agency. The share price will go up as a result. That is the point. 
I also make the point to the Government members that in respect of the eligibility criteria the Minister as we know has the authority to determine eligibility. The height bar for that eligibility is centred round the BB credit rating. Again I say to Mr Gilmore who takes this view that in order—[ 
Interruption 
] The voice has gone up an octave again; I am not sure which member it is. For smaller financial organisations achieving a BB rating is not a matter of simply paying the money and filling out the form. These agencies’ own financial and professional reputations are on the line so they do not give out credit ratings just because financial organisations pay their fee. I am sure that the member being the learned expert he is—far more so than me—will give us a dissertation on the intricate aspects of gaining a high BB credit rating. But putting the detail aside we know that there is a cost. That cost can be marginalised if you will by a large financial institution but a substantial cost is visited upon a small financial institution. There are huge responsibilities which is as it should be involved in gaining that credit rating. If smaller financial institutions cannot gain that rating then the question is whether there will be flight in terms of investment. No one would wish this to occur but it is worth posing the question of whether there would be flight in terms of investment from those smaller institutions which would therefore create instability and the situation where they could fall over and where mum and dad Kiwi investors’ money would be in jeopardy. 
Members on this side of the House support the bill but we also put on record that we are concerned about the small end of town. Government members are concerned about the big end of town and that is all they are concerned about.