Nash Stuart: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Nash Stuart: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6093] 
STUART NASH (Labour) 
: 
 I will make one point with regard to Sam’s speech because he may have got the wrong end of the stick. 
Moana Mackey 
: Probably; I think he is on council time at the moment. 
STUART NASH 
: That is all right. I brought up the fact that people were suffering. The reason I brought up that fact is that Michael Cullen—the previous Minister of Finance who put the Crown Retail Deposit Guarantee Scheme Bill into place—said that one of the main reasons that the previous Government did this aside from shoring up the financial sector was to guarantee ordinary New Zealanders would not be put under the financial and emotional stress that they had been put under due to the collapse of 40-odd finance companies over the preceding 2 years or so. The financial and emotional hardship of ordinary New Zealanders was not brought up in the debate to make a political point at all; it was quite the opposite. It was brought up to say there are two sides to this bill: there is the fiscal or financial side and there is the social side. The social side is just as important as the financial side. So I correct Sam on that: there was no disrespect whatsoever; it was brought up to emphasise two points. 
I make another point: when the Minister of Finance stood up to take a call on Part 1 I was very hopeful that he would answer two questions that the Labour team had posed to him earlier in the Committee stage. The first was how the Government was going to extract itself from this scheme without once again inherently damaging the non-bank centre through a run on deposits by investors in so-called high-risk funds which are currently under guarantee. As mentioned the majority of people who I believe are new investors in financial companies—the $880 million worth of new funds in the finance companies—are investors not savers. I have a real concern that once this scheme runs out people will withdraw their funds from the non-bank sector and therefore create another financial tsunami which may affect the finance companies. 
The second question that I had hoped the Minister would answer is how long the Government will continue with this guarantee. If we look at the regulatory impact statement again we see that it states: “Stability is aided to the extent that moral hazard is reduced thus decreasing the likelihood of more failure in the long run through imprudent lending.” I suppose my concern is that once the market investors and savers—and banks for that matter—become used to such a scheme then extracting ourselves from the scheme will become incredibly difficult. In fact we may find—and this is a risk—that overseas lenders will demand that such a scheme remains in place otherwise the cost of overseas funds will skyrocket having an adverse effect upon homeowners the farming sector and the business sector as overseas lenders price risk accordingly. At the moment the international sector prices risk by looking at the risk of funds falling over. At the moment there is no risk that any funds in any institution that is in the Government guarantee scheme will fall over. How will we extract ourselves from this scheme without the risk premium on overseas funds increasing? I know we are talking about depositors here but it still has implications across the whole banking sector. Unfortunately for the vast majority of New Zealanders for the Labour Opposition and I am sure for the Minister’s frustrated National colleagues he did not talk about this issue at all. 
Another thing that came up in the regulatory impact statement was the statement—and this surprised me—“Letting the DGS cease in October 2010 would avoid the direct costs associated with the Treasury continuing to operate the DGS for an additional period but forgo the fees currently collected.” The reason I found that slightly surprising was that the fees are there to mitigate risk to a certain extent but not to a great extent. I hope Treasury is not varying the scheme simply because it can collect a whole lot of money. There are many reasons for this scheme and one of the very very small reasons is the money it can collect. But as mentioned Treasury has collected over $80 million from this so far. Maybe it should give $13 million back to the adult and community education sector—only $13 million! 
That is OK; let us look at Part 2 which contains some other clauses we can talk about that for retail depositors are just as important as the adult and community sector is to those who are taking night classes.