Bennett David: Questions for Oral Answer — Questions to Ministers 
Text is incorporated into the Bound Volume 
Bennett David: Questions for Oral Answer — Questions to Ministers 
[Sitting date: 21 August 2012. Volume:683;Page:4536. Text is incorporated into the Bound Volume.] 
2. 
DAVID BENNETT (National—Hamilton East) 
 to the  
Minister of Finance 
: What progress has the Government made in ensuring the stability of New Zealand’s financial system? 
Hon BILL ENGLISH (Minister of Finance) 
: 
 We have made good progress. Non-performing loans held by banks have fallen to less than 2 percent of total loans. Capital adequacy has improved as New Zealand households and businesses save more and borrow less. There is strong growth in retail deposits over the past 18 months and this reduces banks’ reliance on funding their lending from overseas. The Government and the Reserve Bank have taken a number of steps to strengthen regulation of the financial sector which puts us in a good position to weather another global banking crisis should it eventuate. 
David Bennett 
: What are some of the measures the Government has taken to strengthen regulations for New Zealand’s financial system? 
Hon BILL ENGLISH 
: The Government picked up the work begun by the previous Government to overhaul capital market regulations established the Financial Markets Authority and continued to work to bring the non-bank deposit takers—that is finance companies—under the Reserve Bank’s supervision. The Reserve Bank has introduced new core funding ratios for banks requiring them to have 70 percent of their funding from retail deposits in long-term wholesale funding. The Basel III capital adequacy standards will apply from 1 January 2013 requiring banks to hold higher and better-quality levels of capital making them safer and more stable. 
David Bennett 
: What further options is the Government considering to further improve the stability of New Zealand’s financial system and to moderate credit cycles? 
Hon BILL ENGLISH 
: The Government is working with the Reserve Bank and Treasury to assess whether further so-called macro-prudential tools could help to moderate credit cycles and build additional resilience into the system. Internationally these tools include increased capital buffers adjustment to risk weights by sector and restrictions on mortgage loan-to-value ratios. The Reserve Bank actively monitors macro-prudential indicators such as credit growth each quarter. If these indicators suggest that an unsustainable credit boom is likely the bank would recommend action. At present the bank considers that adjustments are not required because credit growth remains subdued. 
David Bennett 
: What benefits could the use of these extra macro-prudential tools deliver for the New Zealand economy? 
Hon BILL ENGLISH 
: It is as yet reasonably unclear what benefits they could offer. Based on modelling work that has been done and international experience there is some potential that these tools might moderate rapid increases in borrowing. However there is no silver bullet. Other policy settings also have a role to ensure we have price stability. For instance we need to ensure that the Government gets back to surplus and that we have sound microeconomic settings that encourage business investment and growth. 
Hon David Parker 
: If economic settings are important how can the long-term financial stability of a financial system be ensured when 4337 people a month are departing for Australia permanently? 
Hon BILL ENGLISH 
: The factors that I have outlined in answer to these questions are the factors that are generally considered I think rightly so as those that are important to financial stability and financial stability is an important factor for growth. Those countries that have not had it—that have had unstable financial systems—have got themselves in a real mess. 
Hon David Parker 
: How can the Minister be so sanguine about stability in the financial system when underlying economic growth is weak jobs are not being created the New Zealand economy is being hollowed out and as a result record numbers of New Zealanders are leaving for Australia—now 162000 people since he took office? 
Hon BILL ENGLISH 
: Well the member is mainly incorrect. In fact by international standards we have one of the most stable financial systems. We have moderate growth and new jobs are being created in contrast to most developed economies which continue to shrink. That is why the Government is publishing its Business Growth Agenda in order to work with businesses to ensure we build confidence build investment create jobs and earn higher incomes.