Tremain Chris: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Tremain Chris: Reserve Bank of New Zealand Amendment Bill (No 3) — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18232. Text is incorporated into the Bound Volume.] 
CHRIS TREMAIN (National—Napier) 
: 
 National will be supporting the Reserve Bank of New Zealand Amendment Bill (No 3). In the Committee stage debate on Part 2 we discussed the financial stability reports and some changes around them. It is on that note that I wish to start my debate in the third reading and refer to page 30 of the financial stability report presented in May 2008 that lists the financial companies that have gone into receivership in the last couple of years. The total number of financial companies in receivership or in moratorium relates to $1.925 billion in deposited funds. That is a significant amount of this country’s money earned by hard-working Kiwis. The companies in the $100 million - plus category are Provincial Finance $300 million; Bridgecorp $459 million; Nathans Finance $149 million; Capital + Merchant Finance $187 million; Lombard Group $127 million; Geneva Finance $141 million; and MFS Boston $319 million. All in all these total $1.295 billion. That is justifiable reason to be standing here debating this legislation today and taking it through its third reading and that is why National supports the bill.  
The bill does not cover all the companies that have gone into receivership or into moratorium during the credit crisis that has been in place. There are companies like Blue Chip New Zealand property investment development companies that many New Zealanders have suffered at the hands of. I can talk only about my own electorate of Napier where a number of people who have come into my office had invested money with Blue Chip and bought not just one but two investment apartments using their home as security. Unfortunately they will lose their home as a result of that investment decision.  
This legislation will not fix that but it will add some more prudential supervision to those second-tier finance companies. Although the bill will not fix it entirely hopefully it will provide a high level of scrutiny and more security to New Zealand investors in those second-tier companies. If we go back 2 years and look at the balance sheets of those companies most of them were in pretty good shape then. The problem was that when the credit crunch came many people got the jitters. These companies had borrowed from depositors short term and had lent long term and all of a sudden the investors wanted to withdraw their funds from these companies. They were faced with not having the strength in their balance sheets to be able to sustain a run on their funds and that put them into a difficult position.  
Although the prudential requirements from the Reserve Bank that will be implemented by this bill may improve the balance sheet requirements in a credit crunch there will still be times when it will be difficult for these companies to stop a run on their funds so I do not see how we can overcome that problem in all situations.  
The bill introduces a new regulatory framework for non-bank deposit takers. I have canvassed that during the Committee stage today and I will not go into it in any more detail than is necessary. I just want to say that although the bill does add a higher level of prudential requirement to second-tier deposit takers it will not solve all the problems in that area.  
Under the new arrangements the Reserve Bank’s role will be to license deposit takers to develop and enforce minimum prudential and governance requirements and to apply credit-rating requirements. Trustee corporations will continue to be the front-line supervisors of deposit takers. There will always be a risk in any investment and it is important that that is understood by all consumers. Take for instance Bridgecorp with a credit rating of BB+. This business to all intents and purposes had an investment rating yet it still went into receivership. Although we will introduce credit ratings across the second-tier financial sector it will be important that a strong education programme follows so that consumers out there understand firstly what the credit ratings mean and secondly that a credit rating does not guarantee that their funds will be safe 100 percent of the time; they need to understand that.  
This new bill is however a means by which New Zealand can add more checks and balances on non-bank deposit takers to provide depositors with another level of security. I will say lastly that this will not reduce or remove all risk from the equation. There will always still be a risk at this level and that must be taken into account at all times. Thank you Mr Deputy Speaker. 
Bill read a third time.