Goldsmith Paul: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Goldsmith Paul: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
[Sitting date: 22 May 2012. Volume:680;Page:2266. Text is incorporated into the Bound Volume.] 
PAUL GOLDSMITH (National) 
: 
 I am glad that the Green Party is supporting the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. I am a little worried about references to minor administrative costs for regulation. Unfortunately costs involved in regulating banking are far more often not minor because regulators struggle to get ahead of what is a very complicated and fast-moving industry and the costs and the consequences of their regulations are often very very hard to gauge and understand.  
When we look at this bill New Zealand is a borrower and always has been really since 1840 if not before. It has been importing capital into New Zealand for most of its history. So access to capital is absolutely important to us and going out on the world market looking for capital imposes disciplines. Households have understood that around the country. People right throughout the country are reducing their debt and doing it carefully going through their household accounts working out what they need and what they do not need reducing debt and reducing their exposure and their risks in a dangerous world. This Government is also doing that. We are out there reducing our debt by getting the Government’s books in order working out what we really need and what we do not really need and trying our best to have a sound and sensible economic programme. It is a pity that councils around the country do not seem to be following the same pattern; I wish they would and I encourage them to be more focused on getting those debts back.  
Our need to go out in the world to vie in international markets for capital imposes those sorts of disciplines on us and we ignore them at our peril. New Zealand of course as a small country is responding to international trends and is always looking for new forms of debt and innovation in global markets so we can have access to the capital that we require for a lot that goes on in our economy.  
Covered bonds are a form of debt instrument issued by banks. New Zealand banks have been issuing covered bonds under contractual arrangements since 2010—for the last 2 years as we have heard. It is an old established way of raising money in Europe but relatively new to New Zealand and we are responding to the fact that Australia has moved recently to get a legislative arrangement around this side of borrowing. New Zealand really has no choice but to respond and follow. Covered bonds are a useful instrument for banks to be able to issue as they provide access to an alternative investor base that is typically interested in longer-term investment. So for this reason it broadens the pool of access to capital that we have at our disposal.  
Internationally legislative frameworks for the issuance of covered bonds are common. They are a prerequisite for investment for some investors. As I have said Australia has recently passed legislation and the lack of a New Zealand legislative framework is likely to put New Zealand issuers at a disadvantage and may impede our access to the covered bond market. 
 Why it is important is that at the moment although banks have been issuing these bonds for the last 2 years there is definitely a level of uncertainty as to how certain provisions of the Reserve Bank of New Zealand Act the Corporations (Investigation and Management) Act and the Companies Act would be interpreted regarding the assets in the cover pool in the unlikely event that an issuing bank became insolvent and was placed into statutory management. This legal uncertainty is likely to impact the quantity of covered bonds that New Zealand banks can issue and at times of stress it could increase the price that banks have to pay. This legislation is all about removing that uncertainty and providing some certainty as to the treatment of those cover pool assets in the event of an issuing bank becoming insolvent.  
The secondary objective of the legislation is to improve investor confidence in New Zealand covered bonds by providing independent verification of information provided by issuers on the covered pool assets.  
The Labour Party has raised the issue of the risk to unsecured creditors of these sorts of bonds and the risk is real so it has been the practice of the Reserve Bank since these bonds were introduced to restrict the level to 10 percent. I will be looking forward during the select committee process to testing that level and considering whether that is the right level. That is the appropriate time and process for the parliamentary system to rigorously work out whether the 10 percent restriction is the best way of doing it.  
This bill seems to me to be a remedy to a situation that has arisen in the last couple of years. It is about New Zealand getting access to the capital that it needs to grow. As I said New Zealand is a borrower on the world stage and that imposes disciplines upon us. The Government is responding to those disciplines and that is absolutely the appropriate way of doing it. Thank you. I commend this bill to the House.