Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — First Reading Second Reading In Committee 
[Volume:657;Page:6078] 
CRAIG FOSS (National—Tukituki) 
: 
 I rise to speak to Part 1 of the Crown Retail Deposit Guarantee Scheme Bill. This is obviously the Committee stage and questions have been raised by one or two previous speakers about why there will be no select committee process for this bill. I will quickly touch on that first—because as you will note Mr Chairman Part 1 is quite a small part. 
Quite simply this bill potentially has commercial impact on the equity the share price and the debt price not only of New Zealand institutions but of institutions around the world particularly the parent institutions of some of the banks in New Zealand. I ask members to imagine the bill going through our normal select committee process with submitters arguing about what the various ratings and costings should be. I can understand why someone would like that process but this bill is quite particular and we do note that when the guarantee scheme was first initiated according to the underlying rules and regulations here it did not go through any select committee process. It was brought in under urgent circumstances by the previous administration as speakers have noted during the first and second readings. 
So it seems somewhat unusual that something that is more of a voluntary extension supposedly needs to go through a select committee process. The imperative is that the markets are closed at least in New Zealand but members may notice that some debt prices moved around quite substantially when the media discussed whether the deposit guarantee scheme would be extended. 
Another point is that a previous speaker thought that the current scheme ends in about 4 weeks’ time. In fact it ends on 12 October 2010 so it ends in 4 weeks and 1 year. That might seem a minor matter but it is essential to what is being implemented here. Again this is an extension of about 14 months in about 13 months’ time. 
Again I know we are in Committee but I note that the scheme was brought in to ensure liquidity in the market. Liquidity was needed to keep money moving around to keep loans and to keep the velocity of money in the economy happening because as we recall it was frozen at the time and there was no liquidity out there whatsoever. That was the imperative reason why the scheme was brought in and interestingly this now addresses the difference between the Australian scheme of about 3 years at the time and the New Zealand scheme of 2 years. But it recognises that things have changed and that the risks to the taxpayer and the institutions themselves hopefully will have played out somewhat. 
Again a previous speaker seemed to miss the point that the scheme is voluntary for larger banks. So they are getting no subsidy whatsoever and in fact the charges for them released by the Minister 2 weeks or so ago were higher than what they are currently paying under the existing deposit guarantee scheme. So they will be making a rational economic decision as to whether they are included in the extended scheme. Hopefully at that time as far as the taxpayer is concerned the larger banks will not be in the scheme because they feel no need to be. Hopefully liquidity will be back in the system and things will be moving towards normality. If that was the case the underlying contingent liability on the books of $120 billion would probably move down to something like $30 billion. From the taxpayer’s point of view that is not a bad deal. I note that members opposite are voting for the bill and I am sure they have some issues to raise. 
I have one final point in relation to Part 1. The mortgage-backed securities that the member was talking about were allegedly supposed to be matched books. So if the funding on the liability side the term and the maturity of it matched the asset side it did not matter too much whether they had guarantees because they had matched funding books. So they lent long and borrowed short and therein lies the problem of much of the New Zealand financial system which this bill plus the changes to the non-bank deposit takers which are coming in within the next year will start to address. Thank you Mr Chair.