Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6042] 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to speak on the Crown Retail Deposit Guarantee Scheme Bill. Just picking up from the previous speaker David Cunliffe it is probably important to note that the extension to the scheme does not come into play until October next year and continues for about 14-odd months after that. The bill makes changes to the scheme—it tightens up the pricing and some of the criteria—and in over 1 year’s time the scheme will become voluntary. That is a sign of optimism that the worst of the financial crisis and the economic upheaval of the global financial system is over. In particular in New Zealand we have had our fair share of upheaval problems and tensions within the financial sector. 
The bill is necessary to provide some certainty in the very uncertain environment such as we have seen over the last 2-odd years. When the Hon Bill English introduced the bill he pointed to the beginnings of the crisis and how it had impacted upon New Zealand. But the good news is that possibly—just possibly—there is some light at the end of the financial tunnel. Perhaps the world is emerging from this unprecedented time of economic and financial sector upheaval and recession the likes of which we have not seen on this globe for the last 70 years—since the Depression. 
Late in 2008 the previous Government with the full support of National introduced and agreed to a retail deposit guarantee scheme. The two previous speakers pointed to the wholesale guarantee scheme but that is a totally different beast from what we are talking about here and from what this particular bill addresses. I note that the Opposition will be supporting the bill just as National supported the initial proposal way back in October 2008. I look forward to hearing the points raised by members from other parties. 
The scheme was put together in the heat of the general election campaign but also in the shadow of a similar scheme that was announced in Australia at around the same time. Very tense and strong negotiations were going on at the time. As we all know decisions and policy put together under stress and pressure do not necessarily have the best and desired outcomes. A key difference between the Australian scheme and the existing New Zealand scheme is that Australia’s scheme ends in late 2011 whereas currently the New Zealand scheme ends on 12 October 2010. The closeness of the Australian and New Zealand economies the free movement of capital between our two economies and the common stakeholders within our economies have raised many issues and placed stress on many institutions—from our largest trading banks to our smallest finance companies credit unions and building societies. By asset size the majority of New Zealand banks are mainly Australian owned but it is necessary to note that they are all incorporated here in New Zealand. They are essentially stand-alone entities under the guidance of the New Zealand Reserve Bank although most of their shareholders are in Australia. 
The bill is necessary to put the New Zealand financial system on a relatively level playing field with the one that the Australian institutions operate. As the industry has begun to repair its balance sheets as it has begun to address some of its longer-term funding issues and as it has begun to start to match the maturities of its asset and liabilities books stress has come into play and the wall of funding maturities if you like particularly for non-bank deposit takers within New Zealand as at October next year has raised a lot of issues and a lot of tension. The bill goes some way to addressing those issues but it is more reflective and considered regarding the extension because of its voluntary nature. That is of benefit not only to the Crown and the taxpayer but to the institutions themselves remembering that in the normal market prior to the financial crisis there was no deposit guarantee scheme or wholesale guarantee scheme. In a normal market these institutions will hedge and insure their own risk but with systemic events like we have had recently we need the Crown to intervene for a short period in order to address such issues. 
The scheme is voluntary. If the economy—or at least the financial system—and the ability of New Zealand institutions to raise funds come post-October next year are a lot better than they have been and are now as far as the taxpayer is concerned it would be good if those institutions felt they did not need a retail deposit guarantee scheme because the market itself would show the confidence in those institutions to not require such a scheme. 
I will pick up on a point made by the previous speaker. It is the retail deposits that are insured under the current scheme and the extended although tighter scheme proposed; it is not the institutions themselves that are insured nor their shareholders. There seems to be a bit of miscomprehension about that. New Zealand deposits that are placed with financial institutions within New Zealand are insured under the current scheme and if the institutions themselves take up this extension under the new scheme that is what will be insured. We are looking after the deposits of New Zealanders and New Zealand institutions not the shareholders of those institutions. 
I will raise a quick point. Yes underlying this there will be a better reflection on the price of any credit-type insurance of deposit guarantees and better risk management for both the depositors and of course the New Zealand taxpayer. A glance at the recent Budget and papers around it shows that about $120 billion worth of potential deposits are guaranteed under the current set of accounts. So for the sake of the taxpayer and for the sake of the institutions if we are able to reduce that down to some kind of normality it will be all the better for all concerned. Thank you Mr Assistant Speaker.