Foss Craig: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Foss Craig: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18229. Text is incorporated into the Bound Volume.] 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to speak on the Reserve Bank of New Zealand Amendment Bill (No 3) for the last time. We are up to the third reading and I have already covered many of the points that I and my party have been concerned about. 
I acknowledge the previous speakers; I think we are pretty much all on the same page. The bill is quite technical. It is about my field—finance. The bill says a lot about the need for many New Zealanders or for New Zealand per se to have a better understanding of all things financial. We have our house and we have our income but sometimes some of the biggest risks we take are financial risks and many of us are not fully aware of the underlying risks we take. 
For example we see advertisements for investments over 3 months 6 months 1 year etc. and underneath we see the word “Terms”. Those terms may state that the deposit is guaranteed by first debenture or guaranteed by so-and-so or has a triple B rating from some outfit we have never heard of. If we are not in the finance sector or if we do not have an awareness of it then it all sounds legitimate but it is quite deceptive. That is one of the reasons why the National Party is voting for this bill and for the other bills I alluded to earlier—the Financial Advisers Bill and the Financial Service Providers (Registration and Dispute Resolution) Bill. When the report of the Finance and Expenditure Committee on the inquiry into monetary policy comes out I am sure we will see a familiar theme along those lines—from the National Party at least. 
I point out that if for example a non-bank financial institution states that it is taking deposits and that they are guaranteed by person B that sounds great to a lot of people but it all depends on the integrity of person B. Effectively the depositor is lending money to person B not to the headline institution with the nice flashy brochure that is doing a roadshow around town. Once these prudential declarations have come out and the frameworks are in place and after the initial hiccup or two that is bound to happen then at least what is at risk—a very important term—will be exposed to daylight. There is nothing like a bit of daylight particularly in relation to finance to make sure everything is clean and certain. 
I reiterate what I said earlier: the mission of this bill which I think Mr Groser alluded to is not to take away risk but to declare fairly and transparently the actual risk being taken by first the depositor and second the institution taking the deposits. This bill is not retrospective by the way so unfortunately many of the difficulties we are having with many finance companies will not be fixed by it but hopefully at least it will provide a platform and a framework that will decrease the number of such events in the future. It would be very naive to say we will not see a repeat of those failures in the future. It is very important that what is called the “funding risk” is transparent. As I said earlier the Serious Fraud Office and other agencies with all their powers are looking at some of the institutions that have allegedly misled depositors—the public. Under this legislation some of the related-party transactions would have come out in the wash in the various declarations. 
Some institutions have failed because of dubious behaviour which the authorities are looking into—and all speed to them and I hope those people who have misled the public get their comeuppance—but other institutions are suffering because of the scarcity of capital the scarcity of committed funding against whatever assets they have. In fact some institutions have frozen funds in order to secure their assets. Interestingly some institutions have frozen only withdrawals in excess of a million dollars. They have got a bit of grief for doing that but they are trying to protect their smaller depositors because the larger institutions that have on-deposited to them if you like have moneys in excess of a million dollars. The result is the small investors are quite OK and can withdraw funds. Those institutions argue that the asset—the building the apartment block or whatever it is—will still be there in 5 or 10 years’ time and they just need to taihoa and to get themselves through this trough. 
That does not mean much to someone who is suffering at the moment but my point is those institutions have a funding issue and a funding crisis and that would have been apparent and would have been declared under the capital ratios that this bill brings out. As long as it is declared and is apparent to everyone then there is no problem at all. I think most parties would agree with that. 
The legislation has been tidied up a lot on its way through the House. My main concern has been the various holes in the legislation. The extreme almost absurd example in earlier drafts of the bill was the possible politicisation of monetary policy in New Zealand in so far as non-bank financial deposit takers are concerned. As we spoke about earlier the people who borrow a lot of funding off these institutions are very very vulnerable. They will be looking for somewhere to get credit. That is one point and the select committee’s inquiry into monetary policy may come up with a similar theme. Hopefully that report is not too far away. 
One thing that was not mentioned in the Committee stage was an obvious change that the Finance and Expenditure Committee made to the definition of “deposit taker”. The commentary on the bill states that the committee recommended that the “definition be extended so that a person who had offered debt securities to the public that remained unpaid could be subject to the regime.” That was a very important point. If an institution advertised for investments and if something untoward happened to it between someone committing to send a deposit to it and the funds actually arriving under the bill as originally drafted only funds that had already arrived would have been looked after. Of course we are talking about intent here and if there is an intent to mislead or not show as much information as an institution should in order to be fair and transparent then I say well done to the committee and the officials for picking that up and for many of the other improvements to the bill. 
I spoke before at length about the various capital adequacy bits and pieces and I also alluded to my interest in the Reserve Bank’s own books and balance sheets. It is quite interesting in that it is very difficult to go and look at the Reserve Bank’s books. We cannot go via the Auditor-General; there has to be an independent auditor and we have to go via that organisation. That is an interesting challenge for us; I am spending a bit of time on working out how to get that one put before various committees etc. 
Finally I acknowledge the various speakers and the Minister in charge of this bill and the other two bills that the National Party is voting for. The bills set up a more transparent viable framework. They are good for New Zealand but we have to make sure that we are not skewing the system in favour of or disfavouring one part of the sector. There is an internationalised global financial system. New Zealand gets its capital its funds from elsewhere from outside our borders. We do not fund domestically so we should say thanks to the Japanese housewife etc. So we have to make sure that whatever we do in this bill and whatever we do prudentially and in and around our central bank does not politicise in any way the operation of our regulatory body—our central bank—and does not put us out of step with the other partners and parties we deal with around the globe. 
Thank you Mr Deputy Speaker. I have enjoyed speaking on this bill and I thank the earlier speakers.