Williams Andrew: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
Text is incorporated into the Bound Volume 
Williams Andrew: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — First Reading 
[Sitting date: 22 May 2012. Volume:680;Page:2267. Text is incorporated into the Bound Volume.] 
ANDREW WILLIAMS (NZ First) 
: 
 I rise on behalf of New Zealand First. We will be supporting this bill through its first reading and referral to the select committee. However we do have some concerns as have been voiced this evening in the Chamber. Covered bonds are debt securities that are backed by cash flows from mortgages or public sector loans. A covered bond is a corporate bond with one important enhancement. It has recourse to a pool of assets that secures or covers the bond if the originating financial institution becomes insolvent. In this day and age and in the world that we live in it is becoming increasingly important that we do have these guarantees put in place to ensure a stable and reliable banking system. In this respect the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill does help to bring New Zealand into line with many of our major trading partners in particular Australia the United States and many of our trading partners in Europe and Asia. 
Covered bonds go back to the 1700s. Denmark was the first country back in the late 1700s to issue covered bonds so they are a very very old form of financial tool. More recently of course they have been a major tool used by European banking but in more recent times the likes of the United States Department of the Treasury introduced them in 2008 and the Australian Treasury introduced them in 2010-11. New Zealand banks were the first in this part of the world to actually start using covered bonds and that was back in 2010 but they did not have a legislative framework to work within which is the purpose of this bill—to ensure that our banks work to a legislative framework for those covered bonds.  
We do have some concerns in relation to the 10 percent level. Perhaps that level needs to be considered by the select committee. As we heard earlier Australia operates on the basis of an 8 percent maximum for covered bonds. That has to be given full consideration by the committee and perhaps even 8 percent is too high as we have heard. Perhaps the level needs to be lower but at the end of the day the size of the New Zealand financial market needs to be ascertained. What needs to be worked out is what the New Zealand financial market could sustain so as not to overly affect other deposits from unsecured investors and from our normal investors in our banks in New Zealand so that they are not severely or significantly disadvantaged. It is good that the Reserve Bank will be monitoring this and that it will ensure that there is offshore capital coming into New Zealand in perhaps a more secure manner and one where offshore investors will see New Zealand as an even safer place to invest money in when in the situation we are in at the moment there is global turmoil in many areas of banking.  
However I am concerned and New Zealand First is concerned that we have seen instances with financing troubles in terms of some of these types of situations with our banking such as South Canterbury Finance. After the Government provided the Government guarantee scheme for the financial institutions in New Zealand we saw many of those financial institutions taking a great deal more deposits into their respective organisations unfettered by the control of Treasury or the Reserve Bank. As a result during a period of time many of those financial institutions took on board significant deposits that subsequently failed and were a great loss to the New Zealand taxpayer. We must ensure that those sorts of failings do not occur again. Along with other speakers we therefore want to ensure that this covered bond market does not end up in the situation where offshore investors see this as a very very safe haven to put their money into—one that is guaranteed by New Zealand financial banks and institutions—only for us to find out that perhaps at the end of the day if something were to occur and they were to become insolvent we the New Zealand taxpayer or some form of New Zealand Treasury may have to come to their assistance to prop up the banking system. I shudder at the thought were that to occur so as a result when this bill goes to the select committee we certainly would be expecting that all these aspects are fully considered so that the New Zealand taxpayer the New Zealand Government is not put at risk through the covered bond schemes.  
However we are confident that this does add another tool another bow to strengthen our banking institutions in New Zealand so as to be competitive on the global financial stage. It will assist in terms of securing more capital into this country. Perhaps it might even be a situation where if so much more capital is flowing in here as a result it may alleviate the requirement of this Government to sell off State assets and other things to try to cover much of its funding with funds from elsewhere. It could well be that this situation is so successful that it provides other financial sources for our New Zealand banks to provide much of the necessary capital for the infrastructure within New Zealand for loans to the likes of local government and loans for the likes of infrastructure requirements within New Zealand without being a huge burden on the New Zealand Government and New Zealand Treasury.  
We will be supporting this bill through to the select committee but we will be requiring the Government to fully address many of the concerns that have been raised and in particular we will be wanting to ensure that New Zealand investors and New Zealand unsecured depositors in our banks are not in any way less regarded or given fewer advantages than those who would be under the scheme. We certainly do not want to see a situation where New Zealand investors are again left in the lurch. So we support this bill going to the select committee.