Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
Cunliffe David: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6113] 
Hon DAVID CUNLIFFE (Labour—New Lynn) 
: 
 It will come as no surprise to the public if I reiterate that Labour will be supporting this bill. We do so because we believe firstly that it is appropriate for us to have framework legislation that provides powers to the Minister to bring down policy in this area and to regularise what was necessarily done by emergency or reserve powers under the Public Finance Act after Parliament was prorogued just before the last election. The process we are going through is broadly appropriate; therefore we support it. 
It is right as has been said by the Minister of Finance who has just resumed his seat that this has been a wide-ranging debate. It is right for two reasons. Firstly as my colleague the Hon Lianne Dalziel has been at pains to point out unfortunately there has been no select committee process which I think is both unfortunate in itself and becoming a hallmark of this Government—that it considers that the standard safeguards of democracy are somehow pliable or dispensable. 
We have a regret that in consultation on this bill we did not perhaps make even clearer our concern that there should be an opportunity to more formally question officials and to give members of the sector and of the public the opportunity to raise their issues because although the Reserve Bank and Treasury have been talking to the institutions that is far from the public view. So I guess we go into this third reading debate with an enduring sense of having missed something important along the way. 
I want to firstly recap briefly the Minister of Finance’s summary of the justification for the bill because I think he has encapsulated quite well the rationale. In recalling from our first reading debate the broad scheme of this was that there were three options. Having got the scheme in place we could go cold turkey and let it expire at the end of next year we could have a limited extension with limitations around risk and distortion—which is what the Government has chosen to do—or we could transition gradually to a permanent deposit guarantee scheme which would have some enduring advantages for deposit holders. That is something we believe that the Government rightly still has in consideration. We commend that work and we look forward to a good bipartisan discussion on it. 
Within that the Minister has reiterated three rationales for taking the middle course. We think the middle course is the right course but we have some questions about the nature of the rationale. The first one was system stability. Of course system stability is important and the Minister was kind enough to acknowledge that it was supported by the original retail and wholesale guarantee schemes that the then Labour Government put in place. I reiterate by acknowledging that it is also being supported by the strong presence of the very stable Australian banking system in New Zealand—and that is to be welcomed. It was not caught up in the derivatives-driven mess of Wall Street in the northern hemisphere and it does provide some of the largest share of triple A rated banks in the world. We are fortunate that our system does not suffer from financial stability risk. Where we part company with the Government on this point however is that an acknowledgment of overall stability should not be an excuse to turn a blind eye to second-tier risks and longer-term issues that will be of strategic importance to this economy down the track. Our responsibility is to provide not only for stability today but also for sovereignty tomorrow. It is in those issues that we believe a level of concern is shared by many New Zealanders. 
The minimisation of distortion is important and we agree that part of the seeds of the bursting of the global finance bubble was in the masking of risk through other instruments than we are considering today—things like real estate - backed securities collateralised debt obligations and derivatives which are a different story and not about this issue. But we agree that it is prudent to have some limitation around risk. The line has been drawn here at a credit rating of BB. We believe that there are arguments on both sides of the House. My colleague David Parker has been eloquent in setting out the pros and cons of that line and the fallout for members of the non-bank finance sector that by very issue of scale as opposed to inherent portfolio risk are either too small or cannot stand the transaction cost of getting rated. 
The Minister responded that they have to anyway for other reasons down the track. That does not change the fact that there will be fallout from that market in addition to the fallout that has already occurred and from that we will see a further concentration of that market. That is where we think the Government is on the weakest ground. We would like to have further discussion to help it out on this. The Minister said: “ensure a viable non-bank market”. That is where we believe most of the risk is here. At the end of the Committee stage debate we were coming on to the issue of concentration of risk not only by type—95 percent in major banks—but also concentration by source of funds about 80 percent from Australia into our market and by sector largely into real estate largely fuelling the housing bubble. 
There are some huge issues there for Parliament the Government and Opposition to work together on in the public good to first avoid a further housing bubble and collapse and second to avoid us becoming pawns in somebody else’s banking game and to ensure that New Zealand has a diversity of sources of funds from many different lenders. We must do that so that we are insured against the marginal market problem—that is when you are a very small borrower from a very big person and that person does not need you. Of course the irony is that latterly we are starting to see the emergence of a different issue in that Australia is looking at New Zealand and saying: “Goodness me! You’re about or coming up to a third of our risk pool and you might be riskier than some of our onshore assets. We’d like to take a closer look at your regulation.” Australia might ask the Australian Prudential Regulation Authority to oversee our financial system. 
It is there that we come whether we like it or not to longer-term questions of sovereignty. Those are the issues that in addition to the pass through of interest rates the parliamentary banking inquiry uncovered in the last several weeks and we believe on our side of the House that that was an extremely worthwhile exercise. We had 50-odd submissions despite the work of the Beehive to shut the inquiry down—and I hate to be so harsh but there is no other way to put it. The Beehive tried to roll its own members to vote against the inquiry taking place after the members had proposed a very worthwhile exercise in the Finance and Expenditure Committee. That was our first preference and where it should have happened. 
I really want to thank the Green Party and the Progressive party for working very cooperatively in inviting all other parties in Parliament but where was the Maori Party? It purports to represent people who have interests similar to Labour’s own people—the ordinary folk of New Zealand. We would have welcomed the Maori Party being there. Where was the ACT Party? It has clear views about financial regulation and speaks a lot of sense from time to time. It would have made a contribution. But oh no! The word went out from the Beehive: “Thou shalt not play.” And the word went out from the Beehive to the boardrooms of the banking sector and they stayed away—some of them. Some of them like Kiwibank in particular and groups like Federated Farmers the Manufacturers and Exporters Association the Productive Economy Council—and even the Employers and Manufacturers Association (Northern) goodness me—had the courage of their convictions and said: “Whether you like it or not these issues affect our members.” I commend them for coming along to the inquiry and I am confident that with the further research that is going on we will have a very substantive contribution to make to the ongoing debate. 
In conclusion and coming back to the substance of this bill this is framework legislation. It provides the power for the Minister to bring down by regulation through the Gazette the policy that he has announced in the last couple of weeks—that is to extend by 1 year the retail deposit guarantee scheme. In so doing we can understand that that is the middle option between three and broadly we support both the process and the strategic option shown. But significant issues have arisen in this debate around the lack of consultation the lack of public disclosure of issues the concentration of risk the fallout for the non-bank finance sector the risks around the exclusion of collective investment vehicles and as the Opposition has been at pains to point out the error in our view of allowing the major banks to opt out when they represent 90 to 95 percent of the coverage 90 to 95 percent of the revenue stream to the Government by way of premiums for this retail deposit scheme. The beneficiaries of the wholesale deposit scheme should be in the retail deposit scheme. That in our view was a strategic error. It will result in cherry-picking and it will result in a concentration of risk.