McClay Todd: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — Second Reading 
Text is incorporated into the Bound Volume 
McClay Todd: Reserve Bank of New Zealand (Covered Bonds) Amendment Bill — Second Reading 
[Sitting date: 14 February 2013. Volume:687;Page:7912. Text is incorporated into the Bound Volume.] 
TODD McCLAY (National—Rotorua) 
: 
 It is a pleasure to speak on this bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill in its second reading. I want to thank members opposite and Mr Parker for the way that we were able to work constructively together on the Finance and Expenditure Committee on this legislation. Although for those who are listening— 
Hon Simon Bridges 
: That’s not what David Bennett told me. 
TODD McCLAY 
: No I said David Bennett did not work constructively in the select committee; I did not say Mr Parker! Anyway I will get back to this important issue. 
Although for those who may be listening or will read about this in the newspaper it is not the most exciting piece of legislation it is none the less quite important. It has the ability to have great effect upon banks those who borrow from banks and the cost of their borrowing to some degree. It sets up a legislative framework for the issuing of covered bonds. The covered bonds market in the world is worth some $2 trillion every year which is a very large amount of money. Some would say it is the amount that New Zealand would come close to owing if we did not have a National Government and if the Labour Party was in charge. Thankfully that is not the case. 
The reason it is so important for us to have this legislation is because banks in New Zealand are already entering into covered bonds borrowing around the world and they are doing so without the legislative framework to control the borrowing that they undertake. This also gives legal certainty to rights and responsibilities. 
I think from memory there are four banks in New Zealand as we heard at the select committee that have borrowed covered bonds and they have done so through contractual agreements or relationships. What that means is that in so far as giving preference should a bank fail heaven forbid—I do not believe that will be the case with the larger banks in New Zealand—through their contracts the banks that have loaned the covered bonds to them will already have the ability to have the first chance to get a return on their loans. 
So what this legislation really is doing is bringing this issue within the ambit of the law creating a statute to control it and in turn giving legal certainty to those that would lend to our banks under the covered bonds scheme. I think that brings us into line with almost every other country in the world including Australia which put in place this legislation in 2010. 
I think at the Committee of the whole House stage there will be an opportunity to go into some of the detail of the issues that Mr Parker raised. I very much look forward to that. But I want to pick him up on one point that he spoke of which is around the percentage that banks in New Zealand could borrow under the covered bonds scheme that would be covered compared with their assets. We did agree that it should be set at 10 percent. Indeed already the Reserve Bank has ensured that it is 10 percent and we have decided to put that in legislation. 
The challenge with looking at our lower rate which other countries may use is that the assets of banks in New Zealand compared with the assets of many overseas banks are relatively less significant. Therefore the ability of our banks to borrow from some of the more important covered bonds markets in Europe America and elsewhere would be limited. I understand that in Europe as an example some covered bonds lenders have limits as to the amount and our banks would miss out. 
So I think this is an important piece of legislation and we will have a chance to talk about it much much more. I want just to say at this stage to the submitters who came before the select committee that it was useful for both sides of the House to be able to delve into some of the detail of this bill to a greater degree. I am grateful to some of the experts who had much more knowledge than we initially did before we started on this process. Thank you. 
Hon CLAYTON COSGROVE (Labour) 
: 
 I think my colleague David Parker provided a good encapsulation of where we sit on this side of the House in respect of this bill the Reserve Bank of New Zealand (Covered Bonds) Amendment Bill. We will support it. We support the legislation but with some reservations as Mr Parker outlined in respect of the fact that this bill now does change the hierarchy of security from ordinary deposit holders having an even playing field and being treated equally to those lenders who are the holders of covered bonds having preference over those ordinary depositors. 
But I want to just touch on a point that was made by I think Mr Hayes as Mr Parker resumed his seat. Mr Parker was providing the evidence provided by the IMF the Reserve Bank of New Zealand and the Minister of Finance’s own department Treasury which notes and projects that New Zealand at the moment sorry has the second-worst current account deficit in the world beaten only by Greece. And the IMF the Reserve Bank and Treasury of course note that we are projected at some point in this period to take the gold medal—that is to be No. 1 in the world ahead of Greece—for having the worst current account deficit on the globe. There was an interjection I note by Mr Hayes who said “Oh!” and something about Labour borrowing—you know all we do is borrow. Well could I remind that genius “Dr Dolittle” over there that at the peak of this Government’s borrowing—at the peak of this Government’s borrowing Mr Hayes—$380 million was being borrowed not per year not per month but every 7 days by those guys over here. That is 380 million bucks a week. That genius has the audacity to say to us that we are sort of borrow-and-hope merchants when of course I note that our economic track record—sadly Mr Hayes does not remember this or has a convenient memory loss; maybe it is the bow tie or the flash haircut—when we left office— 
Hon Member 
: At least he’s got hair. 
Hon CLAYTON COSGROVE 
: —OK I apologise; it is not a flash haircut—was 9 years of surpluses from our Government and record low unemployment. Need I go on? Net Crown debt was zero. That was the legacy of our Government which was bequeathed to Mr Hayes’ party and then of course it at its peak is borrowing $380 million a week. That is a lot of bow ties and a lot of haircuts—that is a lot of bow ties and a lot of haircuts for “Dr Dolittle” over there “Mr Magoo”. 
But I want to come back to this bill and I agree with Todd McClay. This is an important—[ 
Interruption 
] I apologise. I may be in the process of agreeing with some of Mr McClay’s words and therefore destroying his career—that was the point. But this is an important piece of legislation. It is about securing banks. But I want to touch on the last points Mr Parker made. We disagree in terms of an acceleration of the 10 percent limit that this should be delegated to the Reserve Bank. In the select committee report on page 7 for Mr Hayes’ benefit—there is only one paragraph on there in case he is confused—it says that “The majority of [the committee] however considered that the current arrangement provides an important element of flexibility which would prove advantageous in any financial crisis when rapid responses to market developments are likely to be needed.” It is true that in a financial crisis rapid responses are required. It is a bit like when we in Government after the Australians rang us up and said that they were having a retail deposit guarantee scheme had to move immediately to ensure that there was no trans-Tasman slippage in terms of depositors’ funds. 
But I would just simply argue this: where is the problem with a lack of flexibility in having the Government of the day make that decision? What it requires is a high price. It requires some efficient analysis and decision-making some rapid decision-making which still provides any level of flexibility one would want but it actually requires the Government to take responsibility for that analysis and for its decision making unlike when these guys got in when in terms of the Retail Deposit Guarantee Scheme the Minister of Finance the Governor of the Reserve Bank and Treasury did not talk to one another. We got gamed to the tune of hundreds of millions of dollars which we should have inquired into had it not been for Mr McClay Mr Bennett “Dr Dolittle” and a couple of others on the Finance and Expenditure Committee who blocked our request for an inquiry into that. And it was Mr Hayes of course—it was Mr Hayes of course—who coined that interesting phrase when I think Dr Clark was raising the issue. Hundreds of millions of dollars got gamed out of the pockets of taxpayers because the finance Minister did not have his eye on the ball and Mr Hayes’ response in the committee—and I invite him to deny it—was to say “Small change.” That is small change. Hundreds of millions of dollars that we know of or it could be $500 million or it could be $800 million and Mr Hayes’ greatest contribution to the body politic was to describe that to taxpayers as “Small change.” Well there endeth the lesson in respect of Mr Hayes—game over. That is what he thinks as a custodian in Government of the taxpayers’ purse. 
So we would argue that the decision to alter the limit and the scheme of arrangement around it should be one taken directly by the Government of the day. It is after all a major policy decision. It does not reduce flexibility at all in terms of the process but instead of sort of bumping responsibility to the Governor of the Reserve Bank so that this crowd could wash their hands of it and say: “It wasn’t us. Don’t blame us. The governor’s independent. He can do it.” they should actually up the ante take our suggestion on board and ensure that it is a policy decision where the Government of the day bites the bullet and makes the call. After all that is why these geniuses are paid sort of quarter of a million bucks a year have a ministerial car and a house and all the sort of— 
Andrew Williams 
: Which geniuses? 
Hon CLAYTON COSGROVE 
: The ones across the aisle Minister Bridges being the newest of them. I am sure his backside is enjoying sitting on the grey leather in the BMW and the bank account has swelled I am sure. But the problem is that Mr Bridges should stand up and say that as a Cabinet Minister he is prepared with other colleagues to take this critical policy decision. As Mr Parker outlined— 
Andrew Williams 
: He’s building bridges. 
Hon CLAYTON COSGROVE 
: Building bridges indeed. He has given up clamping for Lent I am told. That was his last portfolio—“clamping” was the word I was using. 
So where we are at is a 10 percent limit which is higher of course than Australia’s at 8 percent and of course Canada’s as Mr Parker pointed out at 4 percent. And as we go through this bill in the Committee stage it would be helpful if the Minister would tell us as to why he feels he has got to kick the can down the road towards the Reserve Bank house and delegate the decision to the Reserve Bank. It is a major policy decision and that is why those guys over there get paid the big bucks. 
It is a concern as I say that we will be moving from a situation of an even playing field for ordinary depositors; now we will be changing that hierarchy to give preference to those who have the facility of covered bonds. That is a concern. But we acknowledge that on balance this is appropriate legislation bearing in mind the points we have made. And we would encourage as I say the Government as we facilitate the passage of this legislation to outline issues in respect of decision making. 
But I conclude where I began by noting that this Government in terms of current account deficit—you know Bill English will have an achievement this year. We will be No. 1 worst in respect of our current account. In the Western World that will be a historic achievement and it is laid at his feet directly because he refuses to take the advice of the IMF the Reserve Bank and Treasury. He knows something apparently that everybody else including his own department does not. They say the current account deficit is heading for the rocks. Mr English says the IMF the Reserve Bank and Treasury are wrong and he is right but he has no evidence to back up—no evidence to back up—those assertions. He refuses to consider any other measure because he is philosophically opposed to a capital gains tax superannuation measures and other measures that we have put forward and that manufacturers and others have put forward. His view like the Government is to do nothing: cannot do anything will not do anything. They are out of ideas: “The market will sort it. Hands off. We will just take our money and run. We will just take our pay and abrogate our responsibilities.”