Robertson Grant; O'Connor GregDEPOSIT TAKERS BILLFirst ReadingHon GRANT ROBERTSON (Minister of Finance): I present a legislative statement on the Deposit Takers Bill.SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.Hon GRANT ROBERTSON: I move That the Deposit Takers Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.This is the third bill that results from the Government's review of the Reserve Bank of New Zealand Act 1989 that we commenced on coming into Government at the end of 2017. The first two pieces of legislation in that regard were the Reserve Bank of New Zealand (Monetary Policy) Amendment Act that changed the objectives of the Act and also included maximum sustainable employment alongside price stability as the objectives of the bank and also changed the decision-making structure of the bank on monetary policy to be a monetary policy committee. The second piece of legislation the Reserve Bank of New Zealand Act 2021 dealt with the structural matters pertaining to the Reserve Bank including changes to the structure of the board and the way in which decisions are taken.This final piece of legislation in the trilogy to respond to the Reserve Bank review is the Deposit Takers Bill. This bill is important because it does clarify and reinforce the role of the Reserve Bank of New Zealand as a prudential regulator operating at arm's length from the Government so that financial policy and supervisory decisions do not become overly politicised. At the same time the Government's interests are recognised with the bill providing some touch points for ministerial engagement and requiring the Reserve Bank to explain its actions through a variety of accountability documents. The bill also integrates previously separate prudential regimes for registered banks and also licensed non-bank deposit takers such as credit unions building societies and retail-funded finance companies.This is an important piece of legislation to provide confidence to New Zealanders that their financial system is robust and that where there are issues that need to be investigated followed up and enforced the Reserve Bank has the powers to do so. In order to do that there are a number of parts to the bill. Part 1 in particular defines what financial stability is as a core objective of the Reserve Bank. This is vital. Most people understand the Reserve Bank's role in monetary policy because they hear about that on a regular basis through announcements on the official cash rate. What is not as well understood is the role that the Reserve Bank has in terms of financial stability the entire way that the financial system works. [Glass breaks] So the definition of financial stability that is there—never mind it'll clean up—includes ensuring the soundness of individual deposit-takers promoting public confidence and mitigating risk to the financial system and from the financial system to the broader economy. These are core and clear principles to make sure that our overall financial policy work is guided by a good framework.Part 2 of the bill deals with firms that are within a licensing regime. Licensing decisions are important because they ensure that the public can have confidence that a deposit taker is somebody who has the appropriate ownership management and governance structure to provide security for those who do deposit with them.Part 3 of the bill empowers the Reserve Bank to regulate deposit takers in a wide range of areas. It provides greater clarity than the Banking (Prudential Supervision) Act 1989 does. One of the things that has occurred with the Reserve Bank Act is that over the last 30 years or so that it's been in operation a number of obligations have been added to the bank's role without necessarily always being as consistent and as clear as it could be on what those requirements are. So we now have a modern framework to impose regulatory and prudential requirements. The word that gets used in the language here which is used in other central bank legislation is that of standards" and so we're making sure that standards are now integrated across all deposit takers rather than having separate tools in a Reserve Bank Act and a non-bank deposit taker Act. This gives the Reserve Bank a solid foundation to broaden their rulebook.Part 4 of the bill provides a wider range of supervisory powers for the Reserve Bank. This is where this legislation follows through on the International Monetary Fund's work when they came and did a financial stability assessment of New Zealand in 2017 under the previous Government. We followed through on the recommendations and Part 4 in particular goes close to what are called the Basel core principles which essentially are making sure that when the bank undertakes its supervisory duty it can do so with the right tools—for example in the bill there is a new onsite inspection power which has not been available to our Reserve Bank but has been available to central banks around the world.Part 5 of the bill contains a much broader set of penalties and enforcement powers that the Reserve Bank can now use more actively. The 1989 Act had much fewer but generally strong powers and this tended to lead to informal enforcement rather than frequent use of more formal powers such as court-based enforcement. The Australian Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry was critical of an over-reliance around these informal measures in Australia and it felt that that was one of the reasons that things weren't caught early which  obviously had significant consequences for Australian depositors in their banks. So it is important that we get those penalty and enforcement powers right to be able to make sure again that people have confidence that if a bank or a non-bank deposit taker were to act in such a way that was outside the law there would be some kind of penalty upon them.Part 6 of the bill is the part of the bill that will I am sure generate the most comment and interest across the public and that is the introduction or the establishment of a formal depositor compensation scheme. This has been a missing element of New Zealand's financial stability and security system for some time. I don't think I need to remind too many New Zealanders—of a certain age anyway—about what can go wrong; in particular in the non-bank deposit taking part of the sector. People remember what happened with various finance companies around New Zealand. People remember the stress and the pressure that was being exhibited during the times after the global financial crisis. The Government inevitably will be called on in those situations unless there is some form of scheme that is put in place that enables people to feel confident about their deposits. So the depositor compensation scheme that is outlined in this bill aims to promote the stability of the financial system in New Zealand by providing each eligible depositor with $100000 of compensation protection for their protected deposits at each deposit taker.Now this $100000 limit has been the subject of extensive consultation. This whole piece of legislation has been the subject of extensive consultation—two full rounds of public consultation including an exposure draft of this particular bill. This is an opportunity to say that consultation does matter because we began with a significantly lower level of deposits being protected. But the feedback that we got during the consultation process was that we needed to recognise the importance for the financial stability of New Zealand of making sure that that level was set at an appropriate rate. So the $100000 coverage limit will fully cover more than 90 percent of New Zealand depositors. That is broadly in line with international practices.This is a balance because on the one hand if we had a lower coverage limit that would reduce public confidence in the scheme and potentially risk widespread deposit splitting—so people thinking that if it was $30000 or $50000 they would spread their deposits all about the place in order to still be covered and obviously it would disproportionately affect smaller deposit takers. On the other hand even higher coverage limits begin to get us into the potential moral hazard area of the scheme taking on more of the risk and making riskier investments seem like they are more palatable and therefore encouraging some people to put those schemes up.The scheme will be pre-funded by deposit-taker levies and backstopped by the Crown. The target size of the fund that we need for this and the expected time to achieve that will be included in the statement of funding approach that the Minister of Finance is required to publish at least every five years. Officials are currently working through the sizing of the required fund size but if we look at comparative countries overseas it would be from about 0.3 percent to 5 percent of covered deposits but built up over a long period—so built up over a five-to-20-year period to make sure we ease ourselves into this system and that it doesn't have too much impact at any given time.I am incredibly pleased and proud that we have now brought legislation to this House to fill a significant gap in New Zealanders' confidence in the financial system that they are part of. We have seen the damage that has been caused by the absence of this scheme. We have seen the difficulty that has been caused for different Governments by a scheme that does this not existing. I think this is a very important and necessary addition to our financial stability regime.There are other minor elements in the bill including resolution powers. I think it is important that New Zealanders understand there is a way forward and a way out of any difficulties that they may see. I look forward to the Finance and Expenditure Committee considering this piece of legislation. I want to thank in my final few moments the many New Zealanders who have contributed already to this process through the consultation and I look forward to more submissions as we go forward from here. I commend the bill to the House.DEPUTY SPEAKER: The question is that the motion be agreed to."