Tremain Chris: Reserve Bank of New Zealand Amendment Bill — First Reading 
Tremain Chris: Reserve Bank of New Zealand Amendment Bill — First Reading 
[Volume:632;Page:4233] 
CHRIS TREMAIN (National—Napier) 
: 
 I congratulate the last three speakers who managed to drag the debate back to the Reserve Bank of New Zealand Amendment Bill and away from a discussion about $25 ties. I think it is important that we bring the discussion back to trans-Tasman ties and to the impact of those on the bill. 
Just before I do that I would like to acknowledge a gentleman who has just been in the Chamber a former MP Grahame Thorne. I am sure all members of the House would join with me this evening in acknowledging the predicament that Grahame’s family find themselves in with their son and we wish them Godspeed with the events that progress from here. Our thoughts are with Grahame and his family. 
I come back to the Reserve Bank of New Zealand Amendment Bill. In the heat of other debates such as the Taito Phillip Field saga the ongoing issues around New Zealand’s butter trade and the European Commission and the ongoing argument over whether the police continue to set quota targets for traffic enforcement we in Parliament are often forced back to the realities of parliamentary debate around subjects that the average New Zealander probably does not know a lot about or in the greater scheme of things probably does not care a lot about. However in saying that it is important that those who are listening to the debate understand what this legislation is about. This evening I would like to talk to people about this legislation and give them an understanding firstly about the Reserve Bank and its functions in this country and secondly about how this legislation will impact on the Reserve Bank. Thirdly I want to look at the impact of the legislative changes. 
Just to commence I refer to the two key features of the bill which have been quite adequately pointed out tonight. The first amendment is the implementation of the Government’s response to the recommendations of the Trans-Tasman Council on Banking Supervision. In a nutshell the bill will oblige the Reserve Bank to cooperate with the Australian authorities by supporting them and by avoiding actions that would be likely to have a detrimental effect on the stability of the financial system in Australia. That is the first side of it. The second amendment the legislation deals with which I will not focus on too much tonight but which New Zealand First and other speakers tonight have focused on would let the Racing Board decide as part of its betting rules how dividends will be rounded—whether they will be rounded up or down. I guess most of us in the House and anyone who is associated with the racing industry will be hoping it will look to round those dividends up. In finishing that summary I say that National is supporting this legislation going to the select committee. 
I would now like to discuss how the Reserve Bank fits in in terms of this country and this legislation. The Reserve Bank is similar to other central banks around the globe and it has three core functions. The first is to operate monetary policy in order to maintain price stability. In that regard it has a range of between 1 and 3 percent at which it is expected to maintain inflation. I will not go into detail about that but right now our inflation rate is at 4 percent which is significantly above that target and is causing concern in the financial sector. There are different calls out there about whether the official cash rate should be lifted again above the current 7.25 percent which would have a detrimental effect on the nation’s businesses. We depend on having interest rates that are competitive on an international basis in order to have the best chance of competing internationally with the likes of Australia and Asia which have interest rates significantly below where our own are just now and this is certainly a concern. 
The second area the Reserve Bank is responsible for in addition to controlling monetary policy is meeting the currency needs of the public. In this regard the Reserve Bank is responsible for issuing New Zealand’s currency. It also has some other functions in that regard: acting as a banker to the banks and providing inter-bank settlement facilities and related payment services. That is its second function. 
Its third function which is largely impacted by the legislation before us is the promotion and maintenance of a sound and efficient financial banking system. The Reserve Bank is responsible for the registration and prudential supervision of banks. We as parliamentarians often throw around the term “prudential supervision”. It is a term that many people in the general public do not actually understand. Effectively prudential supervision is the audit of banks’ assets and liabilities—their balance sheets—so that we can understand the true financial position of those banks and make sure they are within certain financial ratios so that at the end of the day the consumers who bank with the different banks are protected. The bank is also responsible for helping to promote a sound and efficient financial system. Overseas-owned banks are permitted in New Zealand and we operate a light-handed regulatory regime for banks that relies on a combination of self-market and regulatory discipline. There is no Government guarantee for individual banks or any depositor protection in New Zealand so that is why the prudential system is so important. 
Let us move into the guts of this bill and how it will have an impact on the responsibility of the Reserve Bank. Under the Reserve Bank’s goal of promoting the maintenance of a sound and efficient financial system it is working with the Trans-Tasman Council on Banking Supervision. As the Greens pointed out just before the high degree of Australian ownership of New Zealand banking assets as well as the increasing international regulatory requirements has led to moves by the Reserve Bank to increase global banking policy cooperation. I pulled off the Reserve Bank website just recently a press release from March 2005—which is when the banks first started going down this track—in which Mr Bollard pointed out: “the Council is not based on statute and so does not derogate in any way the Reserve Bank’s responsibilities.” He said that regardless of the Trans-Tasman Council on Banking Supervision: “We continue to maintain and develop the capacity to preserve New Zealand’s systemic financial interests”. It is an important point. We are still maintaining our independence. He continued: “This includes developing crisis management capabilities and ensuring that there exists the legal and practical ability to operate a failed bank if necessary via our local incorporation and proposed outsourcing policies.” 
So let us look specifically at what the new legislation will do in respect of the trans-Tasman banking policy harmonisations. The key elements are these: firstly there will be a general provision requiring each regulator to support the other in fulfilling its statutory objectives; secondly there will be a specific reference in the definition of actions likely to have a detrimental effect to actions that interfere with or prevent the provision of outsource services to a related party in the other country; thirdly there will be a requirement that where reasonably practicable the regulators consult with each other before exercising a power that is likely to have a detrimental effect on financial system stability in the other country; and lastly there will be a requirement that an administrator or a statutory manager in Australia advise the Australian Prudential Regulatory Authority if the administrator or statutory manager has reasonable cause to believe that the proposed exercise of a function or power by the administrator or statutory manager is likely to have a detrimental effect on financial stability in New Zealand—quite a mouthful! 
The key impact of these legislative changes will have an immediate relevance to the Reserve Bank’s policy on outsourcing as Jeanette Fitzsimons pointed out just before. What does outsourcing mean? In a nutshell the banks do quite a significant amount of outsourcing in this country particularly in terms of their computer resourcing and their computer backups so some significant costs will be brought back on to the banks to ensure that outsourcing is brought back into this country. It is one of the key things that will have a big impact in that regard. 
I have just a few closing comments. Closer integration of banking supervision with Australia is appropriate I think given the degree of integration that already exists between the New Zealand and Australian banking systems. Most banks here are owned by Australian parents. Firstly as Jeanette Fitzsimons pointed out with only 8 percent of the banks in this country being New Zealand owned we need to be part of this legislation. Secondly the bill strengthens the arrangements for coordinating with Australia in the event of a general crisis or a specific bank failure involving across-border banks. It will be an improvement on what we have at the moment and better than the other alternative the Government was looking at which was having the Australian banking regulator the Australian Prudential Regulatory Authority being the sole regulator of Australian banks operating in New Zealand. It is a good example of our working closer together with Australia for mutual benefit. I comment that it is a pity Michael Cullen seems to have cooled on closer integration with Australia as was evidenced by his failure to attend this year’s Australia New Zealand Leadership Forum and his calling it a wailing wall of people pushing their own barrows. 
Bill read a first time.