Groser Tim: Reserve Bank of New Zealand Amendment Bill (No 3) — First Reading 
Groser Tim: Reserve Bank of New Zealand Amendment Bill (No 3) — First Reading 
[Volume:644;Page:13837] 
TIM GROSER (National) 
: 
 I am much inspired by the final comment of Mr Woolerton. I will try to keep this mercifully brief with just a few observations. In supporting— 
R Doug Woolerton 
: I was trying to set a precedent. 
TIM GROSER 
: Exactly and we are happy to follow that I can assure the member—on occasions at least. When it comes to anything to do with the Reserve Bank the thought that I—and no doubt many people—have in mind is just what a vital institution a well-functioning independent reserve or central bank is. 
I recall the legendary Australian Secretary to the Treasury John Stone whom I knew in a certain sense when I lived in Canberra in the late 1970s. He was the author of the “Stone Age” in terms of Australian economic literature and made the point that many a prince many a country and many an empire has fallen because they believe that sound money and sound financial institutions are the matter of interest only to dry-as-dust financial people. Thinking about the many pressures that might bring down Robert Mugabe I suspect that hyperinflation is a better bet than external political pressure. 
We have a very good financial system but it is not perfect. We always have to cope with the tendency towards financial disintermediation. If one sets in place any regulatory framework one puts in place at the same time unintentionally a set of incentives to create new institutions and to find new ways around the regulatory framework. 
I fully accept the Minister’s statement that the political origins of this bill predate the latest crisis amongst our finance companies consequent upon the collapse of the subprime markets around the world. It is just a never-ending fight that goes on once every 5 or 10 years between regulators people and the marketplace. We are dealing with that all the time. 
Mr English was absolutely right to say that one can never eliminate risk. Any attempt to do so actually just transfers the risk to the taxpayer. That is what the literature about moral hazard is essentially all about. I remember reading years ago about one of the senior Bank for International Settlements figures. When asked by a banker who was in serious trouble to define just how far the bank would go towards bailing him out he replied: “I will discuss that with your successor.” There is a limit to which any regulatory framework can deal with risk. Risk is an essential part of the framework. 
We will support this bill going to the select committee. We have a number of questions. I am intrigued to understand a little more of what I call the “peashooter” provisions. That is a reference to  
The Economist’s 
 description of the first intervention in foreign exchange markets in 20 years by the Reserve Bank. I do not think it is a major issue but I want to understand better along with my colleagues precisely where the lines are in terms of ministerial direction for the reasons I think Mr English was suggesting. 
In due course the Reserve Bank will sell those holdings if it has not done so in complete form already. It will tell us that it has made a marvellous profit. I suggest that that would not necessarily prove that it was a good intervention any more than if Dr Cullen took along $100 to Sky City on Friday night and made $120. That would not prove that he should be there as a professional gambler. These are some of the questions we have in our mind that we would like to explore at the select committee. 
In terms of the new disciplines foreshadowed for non-bank deposit takers again I see no particular purpose in repeating the main provisions of the bill. They have been discussed by a number of speakers. We start from the basis that we have a sound system. That system has now been subjected essentially to two international crises. One of these occurred in late 1997 and spread into 1998. It was rather erroneously called the Asian economic crisis. I say “erroneously” because although it started with the Thai baht the contagion process reached Russia and Brazil before finally stellar work by Rubin and other major players in the international finance system managed to hold the thing in place. 
New Zealand performed pretty well although it did have major implications at the time for first our exchange rate and second the final frankly overdue junking of the—I have forgotten the technical term of the targeting system used at the time. 
Hon Dr Michael Cullen 
: MCI. 
TIM GROSER 
: Yes that is right; the monetary conditions index. We got our exchange rate depreciation through the back door because the international financial markets basically misread New Zealand’s dependence on Asian markets. 
Hon Dr Michael Cullen 
: MCI. 
TIM GROSER 
: That is correct. 
We will obviously still have risk in the system no matter what happens to this bill when it has been processed professionally through the select committee. The tragedy is that it is not just in respect of electoral finance that the law of common sense does not apply. There is a rather nasty phrase that we all know: “There is nothing faster parted than a fool from his or her money.” It is a very cynical phrase but unfortunately we cannot legislate for common sense. All we can do—and this is the purpose of the bill quite clearly—is set up a framework for better prudential controls of this currently poorly regulated sector though it is of course regulated to a certain extent; provide better information and better public disclosure; and hold the directors and management to account. I am happy to participate in a positive way and the National Party will be supporting this legislation at its first reading.