Willis NicolaNICOLA WILLIS (Deputy Leader—National): National recognises the crucial importance of both the stability of the financial system and also its efficiency and in this bill the Deposit Takers Bill we see good intentions to hold up both of those principles; however we think this is a bill where it is particularly important that the select committee provide further scrutiny. That is because of two things. The first is that this is a bill which imposes a number of new regulatory frameworks for which the detail will really matter and the second is that this is a bill that imposes a new levy upon New Zealanders who are choosing to make deposits in financial institutions and it is crucially important that in making that levy we do not see costs imposed that outweigh the benefits of the proposed regime. So National offers our cautious support for this bill noting however that the detail is critically important. We wish that the select committee process provide an opportunity for people to come forward with expertise about the practical import of the proposed regulations so that we can analyse those and determine whether in fact this is an improvement on the status quo.Now the Minister of Finance highlighted three key aspects of the bill and I want to go through each of those in turn. The first is around improving the range of regulatory tools that are available for the Reserve Bank when it comes to its prudential regulation and supervision functions. Now in practice the Reserve Bank of course is responsible for ensuring that the way in which our financial institutions arrange their risk and affairs does not unduly destabilise financial stability. I think it's going to be really important however that those who are affected by those potential regulatory powers can provide advice and feedback on how they see them being applied. I don't think anyone wants to see a situation where with good intentions of providing more financial stability instead we get a situation where deposit takers see a lot more red tape a lot more cost a lot more regulation that doesn't necessarily benefit overall financial stability nor benefit individual deposit makers. So that's the first part of the bill. The second part of the bill is providing the Reserve Bank a stronger mandate as the resolution authority in event of financial distress or financial crisis. Now again analysing how that role will work in practice and whether the people involved in it will have the expertise required is another area that National will be focusing on in the submissions process.Finally I want to turn to the proposal for a depositor compensation scheme. Now this is an area where National thinks we should be very careful. That's because of the obvious potential for moral hazard. The moral hazard here is that banks and savers could potentially take bigger risks because they know they are insured and what that could lead to is a cross-subsidisation effect where those who are taking bigger risks are able to do so and get greater returns for their deposits knowing that in the event of collapse they will be shored up by those other depositors who have made lower-risk deposits in lower-risk institutions. Now of course this moral hazard can be mitigated through the design of a levy regime where a levy regime carefully acts proportionately to risk and where it ensures that underlying prudential frameworks disincentivise risky behaviour. However it is because of this moral hazard that National stresses that the detail is very very important.I do want to remind this House that we have had recent instances in the Parliament where well-intentioned financial legislation has been introduced only to become incredibly destructive because of the detail of the regulation. The example to which I refer is the Credit Contracts and Consumer Finance Act which members across the House supported because of its good intention of stopping predatory lending but when it came to the detailed regulations that officials wrote what we instead saw was that it gummed up mortgage lending in New Zealand created telephone books' worth of new practices and procedures for those taking part in lending and did so with no demonstrable benefit to consumers. So with that example in mind National does insist that the detail of this regulatory framework and the proposed regulations to be written under it is critically important. We note also that the bill implies increased powers for the Minister of Finance in terms of directing the Reserve Bank and again we are always cautious about any increased powers of that sort because we note the potential for them to be misused.Looking at the bill in totality we acknowledge and recognise the amount of consultation that has taken us to this point and we acknowledge that there have now been successive reforms to the Reserve Bank framework such that the bringing together of these two Acts has been necessitated. For National we do absolutely uphold the concept that the core principles for effective banking supervision should be in line with the Basel core principles—that is the international standard around prudential regulation of banks—and we note that there have been instances in New Zealand's history where we have seen significant financial instability caused by deposit takers' failure and collapse and we do take a real interest in preventing those sorts of things happening again.So as I say this is a piece of legislation where intention is one thing but the devil could well be in the detail. We offer our cautious support and we strongly encourage deposit-taking institutions to make their submissions on how they think this will work in practice to be clear about the impact they think this could have on depositors and everyday New Zealanders and for officials to provide a robust cost-benefit analysis so that we can be satisfied that the potential improvements to financial stability are not outweighed by costs to the efficiency of our financial stability system. I look forward to the select committee process alongside my colleagues on the Finance and Expenditure Committee. This is one where we will have to furrow our brows and concentrate because the potential implications of this bill if done badly are significant and could come at a lot of cost to New Zealanders. So National offers our support to take this bill to select committee.