Foss Craig: Reports — Reserve Bank of New Zealand’s Financial Stability Report May 2010—Consideration of Report of Finance and Expenditure Committee 
Foss Craig: Reports — Reserve Bank of New Zealand’s Financial Stability Report May 2010—Consideration of Report of Finance and Expenditure Committee 
[Volume:665;Page:13043] 
CRAIG FOSS (National—Tukituki) 
: 
 I move  
That the House take note of the report of the Finance and Expenditure Committee on the Reserve Bank of New Zealand Financial Stability Report May 2010 
. First of all I would like to thank members of the Finance and Expenditure Committee. Members of this House will note when briefly looking through this report that the committee was generally unanimous although there were some differences in some areas. Overall I think that that reflects the importance of the really high-level framework stuff that this report addresses. I acknowledge the members of the committee the officials who helped pull that report together and of course Dr Alan Bollard Grant Spencer and Toby Fiennes from the Reserve Bank who presented it to us as they do every 6 months now. I think this is the fourth one we have had since a change of regulation in Parliament 2 or so years ago provided for reports to come out every 6 months. It is important to note the difference between this report and the Monetary Policy Statement although members will be inclined to wander into that territory. They are all linked at the end of the day. 
The good news is that New Zealand’s financial system is very very stable. As noted in the report from the Reserve Bank itself and the report back from the committee the general theme is that things are better than they were. All risks are still quite prevalent. There have been improvements—some within the control of these borders and some beyond the control of these borders. Generally things are looking better. It is also important to note that this report came out on 20 May. In fact we are now in August which is 3 months later. It is amazing how quickly things have moved around the world particularly in southern Europe over recent months in and around Greece and Spain and how what happens there affects how the rest of the globe looks at the New Zealand situation and any metrics that may come to their attention that align us up with perceived higher risk. Those are the glasses through which they are looking at many nations round the world. It is good to note though that the world is probably in a slightly better place than it was even in May when this report came out but the message to New Zealand is that it is still very very tenuous indeed. 
In the report itself—it may be of interest to those members who are not on the Finance and Expenditure Committee to pick it up off the Table—there is a very good diagram that the Reserve Bank introduced in an earlier report and it is called the financial stability cobweb. It addressed many of the questions people would ask about the diagrams and all things finance. This is one diagram that the Reserve Bank has brought into the report—the bank is slowly improving it of course—that shows in pictorial form diagrammatic form how things have improved and the bank has quite solid metrics under that. As members can see on page 4 of the report things have got better on the blue line and the red line is behind. 
One can see that the report starts in May 2009 and it looks at the trend until May 2010—until this report. On every single measure other than capital which I will come to in a moment financial market conditions have improved markedly since the last report which was in November 2009. Even in the constraints of a recession and the tight cash market out there there is still a measure of confidence and the domestic market in a financial stability lens—that is what we are talking about here—has markedly improved particularly in the last 6 months. Funding and liquidity have improved markedly. The global environment itself between November 2009 and May 2010 as in that report also improved. Capital and profitability are still pretty much where they were reflecting the squeeze on margins and the lower velocity of the economy but a bit of confidence is indicated there too. It is very noticeable that each and every one of those lines look better although they are only a snapshot in time. 
Looking forward as can be seen in some of the graphs at the back of the report and in the commentary from Mr Bollard again the message is that things are tenuous and we just have to keep our pencils very very sharp as an indebted country—a country at the whim of the credit markets of the rest of the world. Like it or not those so-called evil foreign bankers occasionally are the ones that have loaned this country $200 billion so we need to make sure that they roll over those loans at the very least and have reasonable terms as our economy tries to address the principal at the very least and pay it off. 
This report picks up a lot of other issues and it looks at a whole lot of things such as fiscal settings monetary policy settings liquidity changes and settings which I will come back to and the global environment overall to name but a few. I tell members to remember that although it is often very tempting in politics to look for the silver bullet or to grab the headline actually everything is linked in those various policy settings. We can argue and discuss as much as we like in this House and around this city but at the end of the day we are a debtor nation. Be it private or public debt as I said earlier we have to keep our pencils particularly sharp in a global environment where simple liquidity—that is the cash itself—is very constrained. Credit—the ability to borrow the funds in the first place then add the cash on top of that—is very constrained. 
The Budget came out at around the same time as this report and other members may want to touch on the importance of fiscal discipline insofar as the Budget is concerned. Members on this side of the House would argue that that was adhered to given the constraints the demands and the commitments made by this Government to New Zealanders and the tension between spending and saving. There is another very interesting part that might be new to members on page 9 of the Reserve Bank’s report in figure B2 on credit default swap spreads. Simply they measure the perceived margin that others are prepared to lend and are lending to New Zealand—anything denominated in New Zealand dollars. 
Some might ask who really cares. If we are a creditor nation then that is a fair point. But as a debtor nation regardless of whether it is the Crown people’s mortgages or working capital for businesses the rate that they pay is totally reflected right there in that graph. It is a bit hard to read but there is an Aussie and a US one over the page that reflects the spikes in the crisis around the globe a couple of years ago. We can see the trend in those southern European nations. When we line up some of the metrics New Zealand does not sit too well on some of them with the rest of the world but on some of them we sit very very well. It is our mission and I am sure it is our obligation to ourselves and to future generations to do all that we can to start to address some of the core problems that can create financial instability in New Zealand. Also as the committee noted there are many many useful graphs at the back of the Reserve Bank’s report. They are backward looking then they forecast out. 
I have no intention of making a political speech here at all. I think as all members acknowledge that we have some serious issues in New Zealand. Many of them have been with us for a long time. They have just got worse or have compounded over particular cycles but if we address the things that we can control in this country then when things happen that are out of our control such as an issue in southern Europe New Zealand itself will be better prepared to get ourselves through any crisis. A good example of that is the free-trade agreements. Most of the members in the House are in agreement with free-trade agreements. For example the free-trade agreement with China was started under the previous Government and it was completed by this Government. Regardless of that how that helped New Zealand through the recession and how it made our financial system more stable with more credit and cash moving around the system is a great example of one of those things that New Zealand could control. We invested in a free-trade agreement that actually helped our economy get through tough times when the rest of the world was imploding. 
On that note I will leave it there. As I said I am not getting political about this particular report. I will finish by acknowledging my colleagues on the Finance and Expenditure Committee. Overall I think we worked together very very well. Although this may seem very dry and boring to some people and members it is of such importance to our country that our system stays as financially stable as it is right now. Thank you.