Reserve Bank of New Zealand Amendment Bill

Madam Chair—Mr Chair; sorry. Clearly, you have not had a sex change. I am terribly sorry. Trust me when I tell you that I was deeply engrossed in a conversation of national interest.

💬 Darren Hughes: Which “National” is that?

Well, actually, “national” as in the wider country. I would be very happy to explain my logic to the member, if he wants.

I rise on behalf of the National Party to address Part 1 of the Reserve Bank of New Zealand Amendment Bill, which the National Party is supporting. I remind members that, really, the essence of the bill is relatively simple. In essence, under this bill, which is the result of deliberations by the Trans-Tasman Council on Banking Supervision—members of which include the Reserve Bank of New Zealand and the equivalent body in Australia, the Australian Prudential Regulatory Authority—both countries will have observance of each other’s jurisdiction, and give consideration to the financial stability and financial management of banks on either side of the Tasman.

To come back to the case in point, members will know that if they look closely at the banking scene in New Zealand, they will see that around 85 percent of banks are owned by Australian institutions. There is clearly a huge degree of integration of the Australian and the New Zealand banking systems. In fact, if one looks at the assets comprising financial institutions in New Zealand, one sees that around 75 percent of those assets come from Australian-owned banks in New Zealand. So the level of integration is extremely high. Of course, it makes tremendous sense to ensure that there is a huge degree of cooperation between the regulatory bodies on both sides of the Tasman.

Part 1 talks to a degree about the definition of financial institutions and, in fact, about what financial institutions are. Members will also be aware that what comes under the purview of the Reserve Bank of New Zealand in terms of financial institutions is actually quite different from what comes under the purview of the Australian Prudential Regulatory Authority. In New Zealand the Reserve Bank has regulatory oversight of only the major banks; finance companies, for instance, fall outside its purview. In Australia that is not the case. Under the Australian Prudential Regulatory Authority—as in the United Kingdom under the Financial Services Authority—there is a much wider review process that includes major commercial banks, as we would understand them, finance companies, as we would understand them, and insurance companies. That is also the case in the United Kingdom, but it is not the case in New Zealand.

This issue raises an interesting point. What we have seen over the last 4 or 5 years is an explosion of the assets contained within finance companies in New Zealand. I think those companies now control something in the order of $12 billion to $14 billion worth of assets. Those assets are controlled by institutions that are not reviewed by the Reserve Bank of New Zealand. They fall outside of this bill. I think it is interesting that we have seen in recent times the collapse of at least three of those finance companies. I suspect that we have not seen the last of collapses of finance companies in New Zealand. I suspect that over time there will be, as there already has been, a greater call from some parts of the community for greater forms of financial regulation of finance companies in New Zealand. That is a debate the National Party is happy to engage in at a later stage.

Secondly, let me make the point that it makes enormous sense for New Zealand to work closely with Australia. I could choose any of the Australian-owned banks, but for the purposes of this explanation let me choose Westpac in New Zealand. Clearly, if Westpac operates successfully here in New Zealand, then part of that success will come from the strength of its parent company. Clearly, it makes sense for the Australian Prudential Regulatory Authority to work very closely with the Reserve Bank of New Zealand, because it is extremely difficult for the Reserve Bank of New Zealand to go about its normal review process of Westpac in New Zealand unless it has full and frank knowledge and information. I was involved in global investment banks, particularly Merrill Lynch, whose main regulator was the Federal Reserve System, even though we operated on the ground in numerous countries. Let us take, for example, the UK.

The question is that Part 1 be agreed to.

R Doug Woolerton: Mr Chairman—

The CHAIRPERSON (H V Ross Robertson): Sorry? The member was calling?

R Doug Woolerton: Carry on.

Part 1 agreed to.

Part 2 Racing Act 2003