Woodhouse MichaelHon MICHAEL WOODHOUSE (National): Thank you Mr Speaker. It might be my age—I have no idea who Professor X is. If I was to pick a movie trilogy that was analogous to this bill it would probably be The Godfather—lots of shady dealings and a few people getting knocked off! Actually here's an analogy: in 2008 when the finance Minister in the Clark Government the late Michael Cullen needed to act quickly to shore up confidence in our deposit system he implemented—during the proroguing of Parliament actually; we were out campaigning quite heavily. I think it was in the middle of October that the action was taken—albeit with the support of National's finance spokesperson the Hon Bill English at the time—to set up what was then known as the Crown Retail Deposit Guarantee Scheme and he did that under existing legislation. One section of the Public Finance Act—section 65ZD—gave the Minister the power to give a guarantee or an indemnity if it's in the public interest.About 11 months later the then Minister of Finance Bill English had to do some tweaks to it including putting a sunset clause on it as the global financial crisis (GFC) passed which was at the end of 2011 and he did so with a five-page Act. So we're now wading through what is a 241-page bill that does more than that but the lion's share of the policy change in the Deposit Takers Bill is actually the setting up of a retail deposit guarantee scheme that's enduring. I don't know why on earth it takes 241 pages to describe that particularly when there's substantive work still to be done and the bill itself sets out a number of regulations and standards and fees that are still to be established years after this process started. So if we're to take the trilogy metaphor a little further this bill were it a movie is very much in the concept stage. It's at the white board stage. They're selecting the executive producers and nobody knows who the actor will be although I have a strong suspicion the lead character could change in about 11 months' time so we'll just wait with interest on that.As a member of the caucus who ran the gauntlet of the tremendous pain that was felt by those affected by the collapse of about nine I think finance companies during the GFC—most strongly by South Canterbury Finance which lost about $1.5 billion of the $2 billion in deposits—it was very clear that our prudential regulation framing did need to be improved. It doesn't matter that they got their money back; it actually caused a huge amount of stress and anxiety health issues pain in the community and certainly some political challenges and the best way to deal with that is to avoid it happening in the first place. So I think actually the prudential regulation of the sector is appropriate but largely it's in place.I'm particularly interested in what the Minister said and what the regulatory impact statement says about moral hazard. Now he seems to think that moral hazard can be managed by limiting the amount that's covered or by putting other rules in place. The reality is that there are two types of moral hazard in this case: one is the behaviour of the banks and deposit takers and the other is the behaviour of the investors. We can regulate the deposit takers all we like but the investors are going to act rationally. There is a risk-return paradigm here: the higher the risk the greater the return; the higher the return the greater the risk. That is Economics 101. Currently the 12-month deposit rate at the Westpac Banking Corporation the Government's bank is 4 percent. At General Finance it's 5.1 percent. So there's a 25 percent premium for the perceived risk—I'm not saying it's a real risk; it's certainly not right now—that a smaller organisation that doesn't have the sort of asset backing that Westpac does might carry.I haven't had enough time to investigate what the interest rates actually were about 18 months ago when interest rates were at rock bottom but it's likely that on a proportionate basis the difference between the registered-bank deposit rates and the building societies' and the other finance companies' deposit rates was probably much greater as a percentage—greater risk. Now one must ask: if those deposits are going to be guaranteed by the Crown through a Deposit Takers Act how on earth do we acknowledge the different risk? Because effectively there is no risk. I say that with the corollary that I've already mentioned that there's a lot of stress and anxiety if an organisation collapses but the moral hazard of the depositors—if they shift their deposits to the higher-return organisation knowing that they are inoculated against the collapse of those companies—is pretty high and no amount of regulation or standards or rule making is going to change the sort of behaviour that is undertaken by depositors. It's quite ironic I think that we're doing this at a time when I would suggest the biggest financial risk on the Crown balance sheet is actually the Reserve Bank itself and the estimates of the potential for loss on the large-scale asset purchase programme that the Reserve Bank embarked on is pretty high.Now some commentators are saying that because it will affect both sides of the Crown's balance sheet that's not going to be an issue. I'm not so sure I agree with that. Some of the numbers being mentioned about the potential for loss through that is in the billions and actually the Minister of Finance has indemnified not by law but by the existing Reserve Bank of New Zealand Act the bank against any losses. So it was printing money knowing that the risk wasn't theirs. So when we're talking about moral hazard we're seeing evidence of behaviour that could have been different had the indemnity not been in place. Would the Reserve Bank have acted differently had they not been indemnified? I would suggest so.So the last thing I would say about this bill—and actually one of the things that I like about it—is Part 7 and that is the crisis and resolution aspect of the bill. One of the things that happened after the 2011 Retail Deposit Guarantee Scheme is that the Auditor-General reviewed that process and made some excellent recommendations one of which was to have a better resolution and crisis management process in place so that we can try and cut things off at the pass and it does appear as though those sorts of things have been very well addressed in this bill. But I agree with Nicola Willis—there's a great deal of work for the Finance and Expenditure Committee to do because the devil will always be in the detail of bills like this. There are 241 pages and I expect Chlöe Swarbrick Ingrid Leary and Helen White will have already started on this. It'll be a potboiler I'm sure and it'll be one that will keep them up night after night as will the submissions that will come pouring in. I might be flippant about that but actually the risk that we do miss something that we do set up a thing like the Credit Contracts and Consumer Finance Act is an example of where we might've missed some of that crucial detail and it will be incumbent on those committee members to be diligent as I know they are in examining the bill and making sure it can be approved. With that in mind I wish them all the best and our cautious support for the bill remains.