Robertson GrantRESERVE BANK OF NEW ZEALAND BILLThird ReadingHon GRANT ROBERTSON (Minister of Finance): I present to the House a legislative statement on the Reserve Bank of New Zealand Bill.ASSISTANT SPEAKER (Hon Jacqui Dean): That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon GRANT ROBERTSON: I move That the Reserve Bank of New Zealand Bill be now read a third time.Before I proceed to go through where we've reached with the bill I do want to reiterate my thanks to all members of the House who have participated in this debate; an excellent and detailed examination of the bill in the committee of the whole House stage which I think has shed more light on what the Government is trying to do here with this piece of legislation. I want to particularly thank members of the Finance and Expenditure Committee who worked on this bill and made some very useful and important changes to it. I also want to make special mention of the officials from the Treasury and the Reserve Bank who have been working on this legislation. This bill as I have said a number of times is second in a trilogy and the work that has gone into those three pieces of legislation has been essentially for more than three years. A joint team between the Reserve Bank and the Treasury have worked together on this and I want to thank all of the members of that group for their hard work along with other officials from both agencies. Finally in this part of my acknowledgments I want to acknowledge the independent expert advisory group that we established right at the beginning of this process—Hon Simon Bridges: What about Andrew Bayly?Hon GRANT ROBERTSON: —under the chairpersonship of Dame Suzanne Snively they have done a tremendous job in supporting the work that we've done. And Mr Bridges I did acknowledge Mr Bayly for his contribution in the committee of the whole House stage; I don't recall the member's contribution but I'm sure it was there behind the scenes as the member so often is: behind the scenes manipulating people around moving the chess pieces about! I'm sure that is what Mr Bridges was doing during the Reserve Bank of New Zealand Bill as well!The core of what we have been trying to do through this Reserve Bank reform process is to modernise the Reserve Bank Act. As I've said a number of times over the two bills that have already come forward the Reserve Bank Act passed in 1989. I was in seventh form; Mr Bridges was tearing up university or somewhere—oh high school at that point as well. It is the case that in the 30 years that have passed the functions of the Reserve Bank have expanded somewhat—in particular in the area of financial policy. So while we can be familiar with the things we see of the Reserve Bank in the news about—such as monetary policy and the setting of the official cash rate. A core part of the business of the Reserve Bank is its prudential-regulation role; the work that it does in making sure that New Zealand has a stable financial system. That has been added iteratively over the years to the Reserve Bank and yet the legislation has not really reflected those changes and so that is the reason for this particular piece of legislation.As I said in earlier contributions the first of our pieces of legislation dealt with monetary policy the decision-making process around that and the objectives for monetary policy. This is what we have colloquially called the institutional bill". This is the bill that sorts out the way in which the Reserve Bank operates in order to fulfil not only the monetary policy objectives as I say but also its broader financial policy work.The bill—and the Act as it now stands—will continue to uphold the operational independence of the Reserve Bank. That is a very important principle that we worked with all the way through this piece of legislation. There were times in our debate in the committee of the whole House where variously members of the Opposition either seemed to want to pull us closer or take us further away from the bank. The fundamental principle of operational independence is important in central banking. Again that year 1989 was significant because it followed on from the concerns that arose in the early- and mid-part of the 1980s about what might happen when there are people who perhaps seek to control aspects of monetary and financial policy from a political perspective. We have in this legislation protected the independence of the bank.In terms of what the bill does the key provisions we've covered often. But one of the most important ones is the establishment of a governance board for the bank. The Reserve Bank of New Zealand has had a board but it has not operated in the way that we might expect a governance board to operate be that from the private sector or be that from a Crown entity. So we now have that. This is a further extension of the concept of a more collective decision-making model that we helped create with the monetary policy committee and moving away from that concept of a single decision-maker. That puts the Reserve Bank of New Zealand in line with central banks around the world in terms of how they operate. When we started out in 1989 the Reserve Bank Act was leading legislation and it had that single decision-maker model. Central banking around the world has evolved to a more collective decision-making model and that makes further sense than to have the board undertake the duties as it does.To ensure that there is a connection between the monetary policy work which is outside of the board—that remains the monetary policy committee's job—and the other functions of the Reserve Bank the decision was made to include the governor as a member of the board. That also was not without some discussion in the committee of the whole House stages but I am absolutely convinced that is the right thing to do. The Reserve Bank Governor continues to play a very important role in all aspects of the work of the Reserve Bank and having that person on the governing board gives me confidence that all of the different functions of the bank will be able to be undertaken with clear line of sight for each other.The bill also strengthens the accountability and transparency arrangements of the Reserve Bank. There is now a formal departmental monitor that the Minister of Finance will appoint. The board has very clear duties and roles and responsibilities. The bank will be subject now to the oversight of the Ombudsman and the Auditor-General so further strengthening and enhancing the accountability arrangements.The bill further clarifies the financial stability objective for the bank to protect and promote the stability of New Zealand's financial system.Andrew Bayly: But not efficiency. Hon GRANT ROBERTSON: That is an appropriate primary objective for the bank. The question of efficiency that Mr Bayly is rightly interested in and concerned about is more properly dealt with not as a secondary rather than primary consideration; it will be a factor in everything that the bank does—in particular in its prudential framework but also all of its statutory principles. Efficiency is not lost Mr Bayly but it is now appropriately placed in the criteria of objectives for the bank.Also what the bank does is provide for the Minister of Finance to issue a financial policy remit. This is an important development to give the financial policy and stability work of the bank an appropriate status. So we have a monetary policy remit; it is the agreement between the Minister of the day and the bank around how they will work in monetary policy: operational independence but the Government gives them guidance. This is what we used to call the policy targets agreement when it was done by previous Ministers before we created the monetary policy remit. Having a financial policy remit as a partner to that is really important because it means that there is a clarity of what the Government's expectations are in financial policy but then the ability of the Reserve Bank to independently operate and implement them. In the absence of a remit like this we've had the situation where there was concern about house prices and their impact on financial stability and we ended up having to use section 68B of the Act to deal with that—Andrew Bayly: After I asked you to do it. Hon GRANT ROBERTSON: —financial policy remit. All-powerful Mr Bayly! The financial policy remit now gives the ability for the Government to be able to have that clearly laid out in law and avoids those ad hoc changes that we have seen.In the time remaining to me I just want to note a point that I made right at the end of the committee of the whole House stage: that also within this bill is the first statutory recognition of the Council of Financial Regulators. This is something that I have personally pushed for. It is important for New Zealanders that all of the bodies that are responsible for regulation within our financial sector regulation of the very important things that happen in banking and in the way in which financial institutions operate—that we actually have a council that is there to make that consistent and to make that work clear to the public but we've never recognised that in statute. So this means that the likes of the Financial Markets Authority the Reserve Bank the regulatory aspects of the Ministry of Business Innovation and Employment and the Commerce Commission are now coming together and we can get better more consistent and more clear regulation in front of the House.I am very proud of this legislation. I want to acknowledge again the hard work that has gone into getting us to this point. And lest anyone think that we might lose out on the excitement of legislation about the Reserve Bank I have this promise: we'll be back shortly with the third in the trilogy the Deposit Takers Bill which will be another important piece of legislation and will finish off the reform of the Reserve Bank that we have undertaken that is 30 years in the making and very important to the stability of New Zealand's finances."