Reserve Bank of New Zealand Bill

Members, we now come to Part 5. This is the debate on clauses 200 to 257, financial and accountability matters. The question is that Part 5 stand part.

Mr Chair, thank you very much. So, as you’ve indicated, this is the part that deals with financial and accountability measures. The first part of it is the requirement upon the Minister of Finance to issue a financial policy remit. This is an important part of the bill in terms of matching the monetary policy remit process with the financial policy remit. This is about making sure that there is a remit containing matters that the Minister considers desirable for the bank to have regard to in relation to achieving the financial stability objectives; essentially, looking in particular at the way it furthers the purposes of the prudential legislation and the bank’s prudential functions.

It is important to note that the earlier reference that was made in the debate—and I can refer back to Part 4, just briefly—to the independence clause, Mr Woodhouse’s view that we were talking about a particular person or a particular Act is quite relevant in the case of this financial policy remit, because part of that would be preventing, for example, a Minister of the day wanting to target a particular bank for the way in which they were doing their work. That would not be possible via the financial policy remit, but rather that it would be around how to achieve the financial stability objectives that are contained—and the prudential functions of the bank.

I regard this as a very important step forward in the way this legislation works. We need to mirror the monetary policy remit with a financial policy remit. That’s the evolution of the Reserve Bank Act. Since 1989, more functions have been taken on by the Reserve Bank within the financial stability space, within the prudential supervision and standards space, and it is appropriate to have an agreement between the Minister and the bank around the way in which they go about that work, and the bill provides the process for the contents of the process for its creation.

We also cover under this part of the bill the funding agreement issue, and I know that members have had some discussion about this and the way in which a funding agreement works. The bill provides that process for finalising that agreement, giving the bank a long period in which it has certainty of its funding—five consecutive years, as it’s laid out in clause 206(2) is important. The bank can get on with its job of doing what it should do, without having to unnecessarily move through the process of a funding agreement. But there is, obviously, the ability for that to be understood and reviewed, and those agreements have to be published and presented to this House under clause 208 of the bill. I don’t believe there’s been any change there in terms of the determination of an annual dividend from the bank, which is, again, the Minister determining that on the basis of discussions with the bank. That continues as we are now.

Then there are the various accountability documents that are covered through this part: the statement of intent, in particular, which is familiar to those who’ve been Ministers or who are Ministers now, and that process is laid out somewhat exhaustively through the bill; the statement of performance expectations—again, familiar to all those who deal with Government agencies and Crown entities; an annual report and the provision of that annual report and its provision through to, indeed, this House. I should also mention subpart 4, which was the question around financial risk management and the importance of a statement of that; a statement of prudential policy, which is also provided here as well. So these are all important accountability measures that the bank has always had. They are tweaked and enhanced in this part, as well as the role around financial policy and the accountability for that.

I think it is time, from the ACT Party’s point of view, that we should also be looking at the disadvantaged members of society, the Pasifika community, the Māori community, and actually include, now, in the framework, the Reserve Bank, the credit unions and building societies mutual model. We should give them the same liquidity buffers that the rest of the banks get, because there is a wellbeing issue there and, sort of, they are discriminated against in terms of an equal playing field. So I’d like the Minister’s point of view on that and giving them equal access to any liquidity support that they require.

I thank the member for the question. I don’t think that, in terms of the way we write legislation, we would be going into that level of detail. That is not how we write legislation. But I do want to acknowledge the issue that he is raising and the fragility, from time to time, of some of the financial institutions in New Zealand. The member raises the question, for example, of credit unions and the importance of making sure that those whose funding is within those bodies who, as the member points out, can often come from lower-income groups, are protected. I acknowledge that point. Whether the exact answer to that question has the same size liquidity buffers as other institutions is a matter, I believe, that falls within the operational purview of the bank. But I think the member is raising an important issue for New Zealand, and one that can be taken up. But it would not, in my opinion, be appropriate for us to be dealing with that within the legislation. But I do think he is raising an issue of some importance.

The question is that the Minister’s amendments to Part 5 set out on Supplementary Order Paper 44 be agreed to.

The question is that Andrew Bayly’s amendment to Part 5 set out on Supplementary Order Paper 46 be agreed to.