Reserve Bank of New Zealand Amendment Bill

I move, That the Reserve Bank of New Zealand Amendment Bill be now read a third time. Obviously, the bill amends the Reserve Bank of New Zealand Act. It makes some changes to corporate governance arrangements for the bank and the financial system oversight provisions that have been listed by the bank. Part 3 of the principal Act deals with the governance arrangements for the Reserve Bank, and the changes in this bill arose from the review of monetary policy conducted in 2001 by Professor Lars Svensson. The bill provides for the Reserve Bank board to have a non-executive director as chairman, elected by the board itself. This will enhance the board’s ability to monitor the bank’s performance, and strengthen the director’s accountability for the performance of his or her duties. Part 4 of the principal Act restricts the use of the words “bank”, “banker”, and “banking” in a name or title. Those restrictions are aimed at preventing non-bank financial institutions from passing themselves off as registered banks, and so misleading the public. The amendments to Part 4 are intended to rectify the problems that have arisen, while still allowing legitimate non-bank financial institutions to continue offering and promoting banking products and services.

Part 5 of the principal Act deals with the registration and supervision of banks, and the management of bank crisis situations. The amendments in the bill are designed to strengthen the Reserve Bank’s ability to deal with those matters. The bill also adds new Part 5B to the principal Act. This new part clarifies and makes explicit the Reserve Bank’s role in overseeing the payment system in New Zealand. The new provisions allow the bank to collect and publish information relating to payment systems. New Part 5C provides for the finality of payments settled through a designated payment system and for the validity of netting under the rules of a designated payment system. It also makes the rules of a designated system valid and enforceable to the extent that they are relevant to payments finality and netting. Although payments through designated systems will be protected, the underlying transactions that give rise to the payments will still be subject to challenge from a liquidator. It will still be possible, also, to take action against a party if it acts dishonestly or fraudulently. A wide variety of different payment systems are potentially eligible for designation, including CLS Bank, a system for the settlement of foreign exchange transactions and domestic payment systems. This bill has been dealt with on a multipartisan basis throughout its passage. It is supported, I think, by all parties in the House. I particularly welcome the input from the Finance and Expenditure Committee, including of course, the former governor of the Reserve Bank, Dr Brash.

I shall make only a very small, short comment. I express my appreciation to the Minister of Finance for his efforts at making this a multiparty bill. As he pointed out, I was governor of the bank when this bill was first introduced into the House. Prior to its introduction the Minister was diligent in talking to all the major parties in Parliament. He sought their agreement to what he had decided to do. He got that agreement, and this bill therefore reflects that consensus. It goes back 13 or 14 years, when we first got a broad parliamentary consensus in favour of a structure for monetary policy in New Zealand, and it is a tremendously positive development that that multiparty cross-parliamentary support has been continued in this way. I register my appreciation for the Minister’s efforts. This is a precedent that we should certainly be continuing.

As chairman of the Finance and Expenditure Committee, I follow on from the Minister and Dr Brash by expressing my appreciation, especially in respect of the committee, which tends to be reasonably political most of the time. This was an example of true bipartisanship, and so it should be for this measure. In particular, I thank Dr Brash for his expertise in assisting the committee with this legislation. One of the major issues we dealt with was, as Dr Cullen has said, the use of the terms “bank”, “banker”, and “banking”. We were struck with a position where we did not want to restrict, as Dr Cullen has said, legitimate financial institutions that were non-registered banks, such as credit unions and building societies. On the other hand, we wanted to provide some belts and braces, some integrity and security for people who were wanting to engage in legitimate banking activities but did not want to be ripped off by sharks, as it were, who were pretending to be banks. Mr Donald provided some assistance in trying to gain some clarity, especially in respect of the definitions of those terms, and I thank him for that. We have put in a disclaimer, so that building societies and others have to make it clear that they are not registered banks, but they can use those terms, because they are engaged in banking transactions and activities. I conclude by thanking the committee. Dr Brash took us through quite a good analysis of the designated payment system, and I acknowledge that. This is a sound bill. It does provide some further integrity to the Reserve Bank as an institution in this country.

I do not want to spend too much time on this bill, but I will just briefly thank my colleagues on the Finance and Expenditure Committee. It is always a little bit different in Parliament when all the parties in the House are supporting a bill together. I do not want to say too much, apart from the fact that I am glad that there are amendments that will strengthen the powers of the bank, register banks, and supervise registered banks. I will go through a few points, and then sit down. The amendments will allow the bank to consider extra information when registering banks; improve the bank’s powers to investigate and direct banks that are in financial difficulty, or which are failing to meet disclosure requirements; improve supervisory abilities to obtain information; improve the bank’s ability to deal with bank failure; and update offence and penalty provisions. New Zealand First supports this bill. We believe that it is a good bill to vote for.

I too would like to make just a brief comment on the third reading of this bill. Firstly, I acknowledge that New Zealand truly has a world-class institution in the Reserve Bank, which I know has gone through a number of evolutions. I think it is good to pay tribute to the former Governor of the Reserve Bank, Don Brash, for his contribution over the years he was there prior to coming into this House.

This is a good bill. It acknowledges the importance of the bank’s prudential supervision over the New Zealand financial sector, which is tremendously important to all of us, and it provides for a new international payment settlement system, which I think is a step forward. So it is with great pleasure that we support this bill. We wish the new Governor of the Reserve Bank, Alan Bollard, and his staff all the very best. We thank them for the contribution that they make to the country.

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?

Clayton Cosgrove knows I was not on the committee.

💬 Hon George Hawkins: Why didn’t Mr Hide raise it?

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.

The House adjourned at 5.20 p.m.