Cunliffe David: Westpac New Zealand Bill — In Committee 
Cunliffe David: Westpac New Zealand Bill — In Committee 
[Volume:672;Page:18814] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 I rise to speak to clauses 3 to 5 which are the preliminary provisions of Part 1 of the Westpac New Zealand Bill. The purposes of the bill as set out in clause 3 provide for the vesting of certain assets and liabilities—as we talked about during the preambular discussion—in the locally incorporated Westpac New Zealand. The genesis of this policy goes back to a review announced on 27 September 2000. My colleague Mr Shane Jones has provided me with this little romp down memory lane and it confirms what we have said before. It confirms that the genesis of this policy was around improving the security of the New Zealand banking system. It does so by requiring under the revised policy banks in the following categories to establish a locally incorporated subsidiary for their New Zealand operations: banks that are either systemically important which Westpac New Zealand certainly is; and/or banks that take a significant level of retail deposits and come from countries that give home country depositors a preferential claim on winding up which includes both the United States and Australia; and/or banks that take a significant level of retail deposits and which in their home countries fail to publish the full information that depositors would need in order to assess financial soundness. In other words this policy is a back-up to ensure that New Zealand depositors have a reasonable expectation of stability and certainty in the market place. 
The policy is intended to help the New Zealand Reserve Bank manage a crisis affecting a systemically important bank. There are both good and not-so-good things to recount about recent financial history in New Zealand. The not-so-good thing is that New Zealand was not immune from the global financial crisis which occurred very visibly in September 2008—2 months before the last general election. Lehman Brothers collapsed the Bank of America was in trouble the world’s largest insurer started breaking up and the world credit system all but froze. What we are fortunate about the good news if you like is that of the about 13 triple A rated banks in the world five of them are Australian and four of them operate in the New Zealand market. So we did not have quite the same level of system risk but let us not be under any illusions. If the world credit system had frozen and if world central banks had not responded immediately with a credit infusion VISA cards and MasterCards would not have worked. Every New Zealander would have been affected and they would go to the ATM and it would not work either. There would have been panic here as there would have been around the world. We missed that bullet by a whisker; and it could happen any day. It could still happen any day. 
I want to compliment the New Zealand Reserve Bank. It responded in an absolutely exemplary manner. I think that all New Zealanders owe the bank a debt of gratitude. I think that the system in New Zealand worked as it should and it worked both pre-crisis and during the crisis. It worked because we had what in global financial circles is known as plain vanilla banking. It sounds not that exciting but actually it means that banks make their money the old-fashioned way by taking deposits and lending and earning interest on that lending rather than coming up with fancy derivatives like collateralised debt obligations or CDOs which mixed high-risk mortgage debt which was worthless with regular debt securities with the ostensible aim of spreading the risk but with the actual effect of magnifying the risk—in the United States by a factor of over 100 times so that the total bad debt was many times the size of the United States GDP. That was the effect and it was like a financial nuclear reaction. But New Zealand missed that part of it because we had a Reserve Bank that was exercising good prudential control and oversight and we had a system of major banks for which derivative trading was a very small part of their portfolio. So that was both the bad news that we were not exempt and the good news that we were in a sounder position than we might have been compared with some other countries. 
This bill is part of the foundation stone which will be there should another event like that God forbid ever occur again. I said a couple of minutes ago that it could occur at any time and I do not want to be pessimistic and I do not want to undermine confidence in our banks which are all in excellent shape. There is no reason to doubt Westpac there is no reason for New Zealanders to doubt any of the other major banks including Kiwibank but it is also true that there is an enormous set of imbalances in the global economy which we are part of. In the Western hemisphere there are trillions and trillions of US dollars of debt and in the Asian realm particularly with China and also increasingly with India and other countries like Korea there is a build-up of significant trade and financial surpluses. So America is not exporting enough and is importing too much; China is exporting a lot helped by an artificially low— 
The CHAIRPERSON (Lindsay Tisch) 
: I would like to hear “Westpac” mentioned occasionally. 
Hon DAVID CUNLIFFE 
: It is banking with Westpac on occasion. No doubt Chinese companies are banking with Westpac but anyway I will cut a long story short. Those risks have not gone away. Those imbalances are still getting worse and unless the world works together to overcome them sadly there is a real risk that the safety mechanism which is embedded in this bill might one day be called upon. I hope that is wrong I hope we never have to do that because in the end it is our whole country our whole economy and every New Zealander who is vulnerable. We do not want that but we are glad we have the banking police on the job—that is the full-service empowered New Zealand Reserve Bank. 
It is Labour’s policy that the Reserve Bank should remain a full-service bank that it should remain independent and that it should remain tasked with system stability as well as price stability. If anything our monetary reform package is designed to ensure that the system stability objectives of which this bill is a part are elevated so that everybody knows that the Reserve Bank is not just there to control inflation; it is there to protect the system. In protecting the system it has to have regard to more than just price stability. Financial stability underpins growth and employment objectives as well. Labour has given notice that we will update the Reserve Bank of New Zealand Act and the policy targets agreement to incorporate the best of the new global thinking that is coming out of the Basel Committee on Banking Supervision. People have heard about Basel II; there is now Basel III. Things like macro-prudential policy and so forth we have discussed at length at the Finance and Expenditure Committee which is the same committee that has passed this Westpac New Zealand Bill. The Chair is getting comfort from that. That is another long story cut short. 
The Labour Opposition supports the Westpac New Zealand Bill 2010. It is called that because there was a 2006 predecessor but one that was not fit for purpose for this bill which operates under the requirements set out by the Reserve Bank since September 2000 as I outlined earlier in my remarks. This is a small but positive contribution to enhancing the system stability of the New Zealand banking system. Westpac is a reputable and well-managed bank and continues and will continue to play a meaningful role as part of the broader New Zealand economy. The Labour Opposition commends the bill to the Committee. We will be supporting clauses 3 4 and 5.