Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
Foss Craig: Crown Retail Deposit Guarantee Scheme Bill — In Committee Third Reading 
[Volume:657;Page:6115] 
CRAIG FOSS (National—Tukituki) 
: 
 I am glad the House is finally on the third reading of the very good Crown Retail Deposit Guarantee Scheme Bill. First of all I acknowledge the support across the House for the bill and the contributions of members particularly those of the Hon Lianne Dalziel in the Committee stage. She talked about the regulatory impact statement and raised some very good questions in and around it. I acknowledge also some of the questions of some of her colleagues. 
One point that kept being raised was why the bill was not referred to the Finance and Expenditure Committee. I note again that the original decision made by the previous administration to bring in the retail deposit guarantee in the first instance did not ever go before the select committee. 
Hon David Cunliffe 
: Parliament was prorogued. 
CRAIG FOSS 
: It was an election period. 
Hon Lianne Dalziel 
: Parliament was not sitting. 
CRAIG FOSS 
: That is quite correct but even after that it did not go before the select committee when the new Parliament was confirmed. But there were plenty of opportunities for members opposite to ask the finance Ministers and Treasury at various stages as part of reviews about this particular question. In fact many members did ask about it at the select committee. 
Also there are market sensitivities around this type of bill. I refer to equity prices and debt prices and to whether an extension of the guarantee is assured particularly for the lower-tiered and lower-rated institutions which many members opposite say they are concerned about. Providing certainty as far out as possible is the best thing. I struggle to see why some members cannot see that. After the Royal assent—let us say that occurs on 15 or 16 September—any institution can voluntarily join and basically have the deposit guarantee for another year subject to terms and conditions and that will allow them to do term funding. As many members will have noticed there is a wall of funding maturity occurring in October next year and this bill starts to address that issue. 
There is one thing I cannot let go. The previous speaker talked about risk as did many speakers on the other side of the House. Under the previous Government the most wealth-destroying regime in New Zealand’s history about $9 billion to $12 billion was wiped off the Crown’s balance sheet. Members opposite should not get up prophesy and dictate to us about risk when their track record is not very flash. The losses included $7 billion to $9 billion from superannuation $2 billion to $3 billion from accident compensation about $1 billion from the National Provident Fund and $1 billion from the railways. Those members should not get up and talk about risk and risk management. Well I guess they can but they should declare what their track record is. Under the previous Minister of Commerce depositors in various finance companies lost about $1 billion. That is not the individual’s fault; of course it is not. Those members should not get up and dictate to the House about risk and risk management when their track record is very very shabby. I do not imagine that the previous Government’s track record of risk management will ever be repeated for a long long time. Certainly in the history of this country it had never been seen before. About $8 billion to $10 billion was wiped off under the previous Government’s watch. 
A couple of points were raised during the Committee stage. Members opposite talked about the exit strategy—how institutions will transition out of the new extension. They seem to forget that it is voluntary. How will institutions transition out? I go back to the original scheme. It would have stopped on 12 October 2010; it would have stopped cold turkey on 12 October 2010. Look at the funding maturity occurring in early October 2010. The scheme was to have gone cold turkey then. If this bill is not passed—hopefully it will be—the scheme will stop cold turkey. Liquidators and receivers will be in there by the dozen simply because of the inability of the institutions to get themselves out of the current funding and liquidity trough. Members get up to ask questions about the transition phase but this measure is the transition phase out of the existing rules. It is quite simple. It is prudential it is common sense it better prices the risk and it is voluntary. I know that is a point the previous speaker has issues with but it is voluntary. From the point of view of the Government of the Crown accounts this measure is a very good option. If the recession continues and/or worsens it is there; it is virtually the status quo. If the economy improves then the downside for taxpayers who have underwritten all these liabilities is very much diminished to the tune of tens of billions of dollars. In that context it is a very very good transitional measure out for the taxpayers of New Zealand. 
Another speaker on the other side of the House seemed confused about what is insured. It is retail deposits under $1 million that are insured under the current scheme. Yes the limit is going down to $500000 but it is not the shareholders’ equity that is insured. Yes the scheme helps institutions but it is not their equity that is insured. If we want to test that we should look at the share prices of institutions both in this country and in Australia since the scheme came in and see whether they have gone up or down. Share prices have actually plummeted. Again the shareholders’ equity in those institutions the asset valuations are not insured; they have nothing to do with this scheme. It is deposit insurance only. 
Mr Norman spoke yesterday and Mr Cunliffe picked up some of his points as well; I guess Mr Norman will give another speech in a minute. Their solution seems to be to nationalise everything to internalise all banking thereby forgetting that New Zealand owes $130 billion to the rest of the world and forgetting that in 2000 it was about half that amount. Those members are trying to forget the last few years of history. If we take the content of some of those speeches to their logical extreme they think that if we fix the exchange rate somehow fix interest rates and bring in reserve asset ratios—from the book of Muldoon—then everything will be fine! It just does not seem— 
Hon David Cunliffe 
: The Reserve Bank’s doing it; it’s called Basel II. 
CRAIG FOSS 
: I note that the member who is interrupting has another solution which is to potentially increase the tax rates on portfolio investment entities. He was quoted in the  
National Business Review  
about that recently. Is that a solution or not? I do not know; I am quite happy for the member to clarify that. I am sure I saw an article about it in the  
National Business Review 
 recently. 
Quite frankly given the track record of the previous administration and the track record of many of the speakers opposite who had ministerial warrants or were associated with the finance part of the previous administration for them to get up and dictate and preach about risk and risk management is very very hollow indeed. The numbers do not stack up. I appreciate and agree with their concerns about the vulnerability of the New Zealand financial system but when they start talking about our losing our sovereignty to Australia and things like that I look at the fact that we are continuing discussions that started under the previous administration. Discussions relating to the back office and the regulatory regime involving the Australasian Prudential Regulation Authority and the Reserve Bank of New Zealand Treasury discussions and ministerial discussions are all continuing. Those members should take pride in the fact that they started to try to coordinate the back-office and regulatory arrangements with Australia. Much of the legislation that came in under the previous Minister of Commerce in terms of non-bank deposit takers looked at what happens over in Australia. Members should take pride in that rather than scaring the horses about something that just does not exist. 
This is very very good legislation. It is a transition out of a very awkward situation that all members acknowledge. I for one hope this country does not ever get into a situation where such a guarantee in such unusual circumstances is needed again.