Parker David: Non-bank Deposit Takers Bill — Second Reading 
Text is incorporated into the Bound Volume 
Parker David: Non-bank Deposit Takers Bill — Second Reading 
[Sitting date: 02 August 2012. Volume:682;Page:4251. Text is incorporated into the Bound Volume.] 
Hon DAVID PARKER (Labour) 
: 
 The Labour Party will be supporting the Non-bank Deposit Takers Bill through its continuing stages. One of the lessons from the global financial crisis is that regulators all around the world really became too lax in the regulation of the financial services sector following years of prosperity when people and regulators assumed this would carry on forever. It was really only after the collapse caused by some of the risky lending that took places in jurisdictions mainly overseas in respect of derivative transactions but also in New Zealand in terms of some of the non-bank deposit takers that the regulators and their masters including parliaments were sufficiently alert to the need to update regulation. 
Indeed it is only posthumously that one of the leading academics in this field Hyman Minsky an American economist has had his views gain currency. There is a reference I think now in the language around these things to the Minsky moment. That is effectively the point when it all tipped over and cascaded downwards and imploded upon itself; we had cascading failures in the financial sector locking up the financial sector around the world. Why this is particularly important in the financial sector compared with some other sectors is that if a business unit fails in the non-financial sector then the rest of the economy keeps working but when the financial sector wheels stop turning the rest of the economy stops as well because financial intermediaries are important to the functioning of the whole economy not just to the profitability of the financial sector itself. 
Hyman Minsky’s view of the world was that regulators have to constantly update financial regulation in order to keep the financial sector from embarking upon risky behaviour that puts at risk the operation of the financial services sector in a way that can impact upon the wider economy. Indeed Hyman Minsky pointed out that the longer the period of settled prosperity the greater the need there is for financial regulators to be staying ahead of the moves made by the financial services sector and that is because the longer the period of prosperity the dimmer the memories are as to the last time there was a clean-out and the dimmer the memories are as to what can be the consequences for both the financial services sector and the wider economy of too much risk-taking behaviour in respect of the financial services sector. He also made the point that the longer the period of financial security in the financial services sector the greater the expectation is that next year the profits will be higher and in order to have that building profit from year to year exponentially growing the only way banks and other financial intermediaries can do it is generally—well actually it is not the only way but a preponderance of later years of long periods of economic prosperity is risk-taking behaviour in respect of our financial institutions. 
How that manifests itself is that banks and non-bank deposit takers in order to do those things embark upon things that are not controlled because they do it around the outside of regulations and therefore they are not caught by some of the prudential rules that apply under the status quo regulations. Hyman Minsky said the regulator has always got to be keeping an eye on what is happening in the market and always got to be keeping ahead of these changes in practice on the part of the financial intermediaries in order to avoid these risks becoming heightened everything falling over at once and cascading failures leading to the financial sector grinding to a halt and effectively closing down other parts of the economy in part because consumers who are lending money to these deposit takers are so hurt by the sudden shock of not being able to get their money out of these financial intermediaries. They themselves then do not have money to spend in the economy and you get into a declining economy and a deflationary spiral or at least a recession. That is what happened around the world at the end of 2008 and 2009 and as a consequence we have seen financial regulators around the world taking steps to minimise the risk of that happening again. This bill is part of that. This is not in respect of banks; it is in respect of non-bank deposit takers. 
This bill imposes prudential requirements upon these non-bank deposit takers by incorporating prudential requirements that are already able to be applied by the Reserve Bank under the Reserve Bank of New Zealand Act 1989 pursuant to a new part that was introduced by this Parliament not so long ago but the provisions of which have yet to be applied to the non-bank deposit taking sector. That is what this bill does; it extends those prudential requirements through this bill. The Reserve Bank can now apply those prudential requirements to the non-bank deposit takers. 
This is therefore worthy legislation and that is why the Labour Party supports it. But—and you would expect a “but” from me in the Opposition because there are so many “buts” to be given at the moment—it really does not do anything substantial to overcome New Zealand’s problems. We heard the Minister of Finance saying today that New Zealanders are saving more. Actually New Zealand debt as he acknowledged quickly in the early part of his answer has gone down by 0.2 percent in the 4 years since National came to Government. The trade deficit is projected to go out. There was a 0.2 percent reduction in household debt and that is at a time of recession when people are losing confidence. They actually put their cheque books away for a while and they do not buy as many TVs and cars and they do not spend as much money on their house alterations etc. Therefore you would expect if New Zealand’s economy was performing relatively well that we would have household debt going down by more than just 0.2 percent in the last 4 years. That of course is one of the reasons why we are losing so many people to Australia including from our resource-rich area Taranaki. You would expect if the drive to Australia was because of the resources boom that Taranaki would be different to that trend even if it was apparent elsewhere in New Zealand but it is not. 
What does the Labour Party say is more important than the likes of this bill? We should be debating real pro-growth tax reform in this country. Does New Zealand need tax changes in order to put on a better footing investment in our productive sector rather than our speculative sector? I think we do. I think it is abundantly clear. Treasury thinks we do. The Reserve Bank thinks we do. The IMF thinks we do. The OECD says—but the National Party refuses to have a debate in this House as to whether we should be passing a capital gains tax. It is absolutely necessary for the health of the New Zealand economy but not at all on the National Party agenda. 
Dr David Clark 
: They’re worried about the 1 percent. 
Hon DAVID PARKER 
: No it is a 0.2 percent reduction in household debt. We do need to transition to higher savings. We need more New Zealanders saving. We need a universal KiwiSaver scheme. Improving the regulation of non-bank deposit takers is a worthy thing to do but if people are not saving more money then there is not going to be much more money to be lent by those non-bank deposit takers to sections of the economy. This bill does nothing to fix that. 
The bill does not change the shape of where investment money is going into New Zealand. It does not increase the amount of investment money in the New Zealand economy but it does further regulate the economy. So it is somewhat strange that we have got a National Government which thinks the answer to most things is further deregulation and I am pleased that it sees in this area that deregulation is not the answer and that there is a need for more regulation. But I do make the point that it does not lift New Zealand’s economic fortunes in the way we need in order to stem that flow of so many New Zealanders overseas. Forty percent of them now are aged 18 to 30. It is a terrible loss of that resource from New Zealand—those people who do not think they have got hope and opportunity in New Zealand but instead go overseas. They are going because of New Zealand’s problems because the Government is not discussing these other important issues. 
I am going to run out of time to talk about how this bill does not affect Treasury but maybe Mr Cosgrove or— 
Todd McClay 
: Ask for an extension of time. 
Hon Members 
: Seek leave. 
Hon DAVID PARKER 
: I hear Government members seeking leave for me to have an extension of time so I am happy to— 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: No no— 
Hon DAVID PARKER 
: I seek leave for another 10-minute call in this debate in addition to the other contributions that are made pursuant to the Standing Orders.