Franks Stephen: Reserve Bank of New Zealand Amendment Bill — Third Reading 
Franks Stephen: Reserve Bank of New Zealand Amendment Bill — Third Reading 
[Volume:610;Page:8021] 
STEPHEN FRANKS (ACT NZ) 
: 
 Although I have not previously been engaged on this bill I rise for the ACT party and it is with some concern that I do so. There is a provision in this bill that authorises the Reserve Bank when deciding on an application for registration to have regard to the home jurisdiction of the bank and to have regard to the recognition and priorities of claims of creditors or classes of creditors in the event of the insolvency of the applicant. What that provision says covers or addresses is a matter that has been worrying our Reserve Bank for years. It is a matter that the Government has known about for many years. It is a matter that has probably been the topic of secret representations and discussions between the Australian Government and Labour Ministers for some time. It is a matter that shows the degraded and weak position that this Government has brought New Zealand to in relation to Australia because that clause is the best that this Government can do to remove one of the gravest threats facing the New Zealand financial system which the Reserve Bank has known about for many years which a Deputy Governor of the Reserve Bank drew to New Zealand’s attention in July 2001 and which no Government has had the diplomatic or political clout to deal with. 
Section 13A of the Australian Banking Act says that in the event of a collapse of an Australian bank Australian depositors get paid first and there is no definition of “depositors”. In effect it says that Australians have a first mortgage and everyone else comes second or nowhere. This bill should have been the chance for the Government to fix that. In July 2001 I urged the Government to deal with it as a matter of priority. For a start I urged that it should include a provision that would enable the New Zealand Government to freeze assets of Australian banks and Australian businesses in New Zealand at least until we knew that we would get fair treatment along with the Australian depositors or until we knew that we would be given a place at the negotiating table to work out what would happen in the event of an insolvency in Australia. 
Those are not fanciful recommendations. The Deputy Governor of the Reserve Bank said in 2001 that that is a risk the system should be providing against. Almost uniquely our regulatory system for banks relies on overseas regulators. We recognise that what happens here will not be controlled by what we do; it will be controlled by the way the insolvency is dealt with in Australia or wherever else the bank is headquartered. 
That provision should have had something with teeth in it to ensure that the Australians by whom our system is dominated could not simply take the money and leave us to—in the rural phrase—suck the hind tit because that is what the law of Australia provides and so does the law of the United States but not the law of the United Kingdom. Why is that significant? Because the National Bank of New Zealand is effectively controlled from the United Kingdom which internationally probably has the best and longest experience of banking and which does not do something as silly nationalistic and as potentially damaging as to claim a preference for its citizens over the other creditors of a bank. 
That leads us to what this Government should be doing today and to what this bill should be doing. We should not be passing this bill because this may be the best and only chance for the New Zealand Government to say to the Australians: “Transaction declined.” Until the Australians come up with a law change that says that New Zealanders will be treated on an equal footing with the Australians—if our banking system is to be utterly dominated by Australia—the National Bank should not be sold to an Australian bank. If this Government were looking after the interests of New Zealanders and if it were thinking about what would happen in the event of Australia’s tangent heading off in a different direction from ours it would be saying to the Australians right now: “We would allow your applications to go through the competition law process but only if we knew that at the end of it Australian law would treat New Zealanders fairly and equally.” 
The Government has one chance now; there is some leverage. Clearly the Australians have got their hooks out for the National Bank. We learnt this morning that the ANZ had applied to the Commerce Commission for authority to buy the National Bank and this Government and this bill should be saying immediately and publicly that the Australians should truck off until they have fixed their law. 
 We are woefully over-exposed already to the financial sentiment of the Australian banking sector. When I worked with banks if the Australians had a drought and there was some rural depression the word would go out: “No more lending to farms.” It did not matter what was happening in New Zealand. It would be a system-wide instruction that suddenly farm lending had become risky and we would see a contraction in New Zealand. That is certainly what the bank managers told us. I do not know whether it was the case but it was certainly the way they explained what used to happen in the case of otherwise irrational restrictions on New Zealand business. 
But that is a matter that competition law should deal with. Conspiracies or the possibility of conspiracies in the clubs and the offices in Melbourne and Sydney are something that the competition authorities should take account of but this is clearly something for the Government. The Government should now say that the most serious risk of Australian depositors being paid first and of New Zealand with absolutely no leverage being left watching wistfully from the outside as an Australian bank mess is cleaned up should be dealt with by the Reserve Bank Act having adequate powers to hold its own pistol at the people who would otherwise benefit from the Australian law. 
We should have a simple provision that said that there was the possibility of a freeze until the Australians acknowledged the claim of New Zealanders in regard to any last-minute sums whipped out of New Zealand to the central treasuries in Sydney and Melbourne any mysterious accounting and any problem with the computer system and showing who owned what—all of which would occur in the event of an Australian collapse. There should be no question of the National Bank being sold or of it increasing the concentration of assets held in New Zealand by the Australian banking system until that is done. 
I say to Dr Cullen that it is quite simple. He has known about this since I wrote to him. Let me read Dr Cullen the question. [ 
Interruption 
] It was well before that. I am sure he did. 
Clayton Cosgrove 
: Why didn’t the member raise it at the committee? 
STEPHEN FRANKS 
: Clayton Cosgrove knows I was not on the committee. 
Hon George Hawkins 
: Why didn’t Mr Hide raise it? 
STEPHEN FRANKS 
: Government members are now asking why someone else did not do their job for them. Clayton Cosgrove says that it is serious so why did someone not do it? Let us have a look at when it was raised. The Government knew about this from the Opposition in August 2001. My question to the Minister of Finance was: “Is the Government satisfied it could set off the liability of Crown agencies and entities and State-owned enterprises against debts of Australian banks or subsidiaries of Australian banks in the event of financial stringency affecting an Australian bank in which the Crown could otherwise be adversely affected directly or indirectly by the operation of section 13A of the Banking Act (Australian)?”. Dr Michael Cullen replied: “The Crown is not responsible for the debts of Crown entities and State-owned enterprises.” 
I gave up at that stage. When I heard from Dr Cullen in his own written answer that the Crown is not responsible for the debts of Crown entities I thought that that man did not know a thing about banking. He does not know a thing about finance. He has never negotiated anything. He has never paid anyone out of money that he has earned himself. He has never employed anyone. That man is in charge of our financial system and he is putting forward a bill that does not deal with the prospect of the Australians having in effect a guaranteed subordinated capital. In fact I wonder whether under the banking capital adequacy rules they might even be able to treat New Zealand deposits as in effect a form of second-tier capital because that is where we will rank. That is a funny prospect but he should look at it. 
What this bill should be doing is very clear. Instead what is happening is that patriotic but misguided New Zealanders are asking whether they can put together a syndicate. Men like Phil Verry whom no one should trust and who is getting headlines because everyone is too scared to tell the truth about his activities are at least speaking up and asking where the New Zealanders are who would keep that asset in New Zealand hands given the risks to New Zealand and its financial system of our entire banking sector ending up with all the decisions made in Melbourne and Sydney. 
That is a risk that Dr Cullen knows about but having sacrificed all goodwill with the Australian Government having reneged on defence commitments and having unilaterally abrogated our immigration accord understandings with the Aussies he has no negotiating power with them; he now gets an opportunity with a bank for sale that has been the best run and the most profitable in New Zealand but he does not have the nerve to tell the Aussies they cannot have it. 
Bill read a third time.