Deposit Takers Bill

I present a legislative statement on the Deposit Takers Bill.

💬 SPEAKER: That legislative statement is published under the authority of the House and can be found on the Parliament website.

I move, That the Deposit Takers Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider the bill.

This is the third bill that results from the Government’s review of the Reserve Bank of New Zealand Act 1989 that we commenced on coming into Government at the end of 2017. The first two pieces of legislation in that regard were the Reserve Bank of New Zealand (Monetary Policy) Amendment Act that changed the objectives of the Act, and also included maximum sustainable employment alongside price stability as the objectives of the bank, and also changed the decision-making structure of the bank on monetary policy to be a monetary policy committee. The second piece of legislation, the Reserve Bank of New Zealand Act 2021, dealt with the structural matters pertaining to the Reserve Bank, including changes to the structure of the board and the way in which decisions are taken.

This final piece of legislation in the trilogy to respond to the Reserve Bank review is the Deposit Takers Bill. This bill is important because it does clarify and reinforce the role of the Reserve Bank of New Zealand as a prudential regulator operating at arm’s length from the Government so that financial policy and supervisory decisions do not become overly politicised. At the same time, the Government’s interests are recognised, with the bill providing some touch points for ministerial engagement and requiring the Reserve Bank to explain its actions through a variety of accountability documents. The bill also integrates previously separate prudential regimes for registered banks and also licensed non-bank deposit takers, such as credit unions, building societies, and retail-funded finance companies.

This is an important piece of legislation to provide confidence to New Zealanders that their financial system is robust and that, where there are issues that need to be investigated, followed up, and enforced, the Reserve Bank has the powers to do so. In order to do that, there are a number of parts to the bill. Part 1, in particular, defines what financial stability is, as a core objective of the Reserve Bank. This is vital. Most people understand the Reserve Bank’s role in monetary policy because they hear about that on a regular basis through announcements on the official cash rate. What is not as well understood is the role that the Reserve Bank has in terms of financial stability, the entire way that the financial system works. [Glass breaks] So the definition of financial stability that is there—never mind, it’ll clean up—includes ensuring the soundness of individual deposit-takers, promoting public confidence, and mitigating risk to the financial system and from the financial system to the broader economy. These are core and clear principles to make sure that our overall financial policy work is guided by a good framework.

Part 2 of the bill deals with firms that are within a licensing regime. Licensing decisions are important because they ensure that the public can have confidence that a deposit taker is somebody who has the appropriate ownership, management, and governance structure to provide security for those who do deposit with them.

Part 3 of the bill empowers the Reserve Bank to regulate deposit takers in a wide range of areas. It provides greater clarity than the Banking (Prudential Supervision) Act 1989 does. One of the things that has occurred with the Reserve Bank Act is that, over the last 30 years or so that it’s been in operation, a number of obligations have been added to the bank’s role without necessarily always being as consistent and as clear as it could be on what those requirements are. So we now have a modern framework to impose regulatory and prudential requirements. The word that gets used in the language here, which is used in other central bank legislation, is that of “standards”, and so we’re making sure that standards are now integrated across all deposit takers, rather than having separate tools in a Reserve Bank Act and a non-bank deposit taker Act. This gives the Reserve Bank a solid foundation to broaden their rulebook.

Part 4 of the bill provides a wider range of supervisory powers for the Reserve Bank. This is where this legislation follows through on the International Monetary Fund’s work, when they came and did a financial stability assessment of New Zealand in 2017, under the previous Government. We followed through on the recommendations, and Part 4 in particular goes close to what are called the Basel core principles, which, essentially, are making sure that, when the bank undertakes its supervisory duty, it can do so with the right tools—for example, in the bill, there is a new onsite inspection power which has not been available to our Reserve Bank but has been available to central banks around the world.

Part 5 of the bill contains a much broader set of penalties and enforcement powers that the Reserve Bank can now use more actively. The 1989 Act had much fewer but generally strong powers, and this tended to lead to informal enforcement rather than frequent use of more formal powers, such as court-based enforcement. The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was critical of an over-reliance around these informal measures in Australia, and it felt that that was one of the reasons that things weren’t caught early, which , obviously, had significant consequences for Australian depositors in their banks. So it is important that we get those penalty and enforcement powers right, to be able to make sure, again, that people have confidence that, if a bank or a non-bank deposit taker were to act in such a way that was outside the law, there would be some kind of penalty upon them.

Part 6 of the bill is the part of the bill that will, I am sure, generate the most comment and interest across the public, and that is the introduction or the establishment of a formal depositor compensation scheme. This has been a missing element of New Zealand’s financial stability and security system for some time. I don’t think I need to remind too many New Zealanders—of a certain age, anyway—about what can go wrong; in particular, in the non-bank deposit taking part of the sector. People remember what happened with various finance companies around New Zealand. People remember the stress and the pressure that was being exhibited during the times after the global financial crisis. The Government, inevitably, will be called on in those situations unless there is some form of scheme that is put in place that enables people to feel confident about their deposits. So the depositor compensation scheme that is outlined in this bill aims to promote the stability of the financial system in New Zealand by providing each eligible depositor with $100,000 of compensation protection for their protected deposits at each deposit taker.

Now, this $100,000 limit has been the subject of extensive consultation. This whole piece of legislation has been the subject of extensive consultation—two full rounds of public consultation, including an exposure draft of this particular bill. This is an opportunity to say that consultation does matter because we began with a significantly lower level of deposits being protected. But the feedback that we got during the consultation process was that we needed to recognise the importance, for the financial stability of New Zealand, of making sure that that level was set at an appropriate rate. So the $100,000 coverage limit will fully cover more than 90 percent of New Zealand depositors. That is broadly in line with international practices.

This is a balance because, on the one hand, if we had a lower coverage limit, that would reduce public confidence in the scheme and potentially risk widespread deposit splitting—so people thinking that, if it was $30,000 or $50,000, they would spread their deposits all about the place in order to still be covered, and, obviously, it would disproportionately affect smaller deposit takers. On the other hand, even higher coverage limits begin to get us into the potential moral hazard area of the scheme taking on more of the risk and making riskier investments seem like they are more palatable and, therefore, encouraging some people to put those schemes up.

The scheme will be pre-funded by deposit-taker levies and backstopped by the Crown. The target size of the fund that we need for this, and the expected time to achieve that, will be included in the statement of funding approach that the Minister of Finance is required to publish at least every five years. Officials are currently working through the sizing of the required fund size, but, if we look at comparative countries overseas, it would be from about 0.3 percent to 5 percent of covered deposits, but built up over a long period—so built up over a five-to-20-year period to make sure we ease ourselves into this system and that it doesn’t have too much impact at any given time.

I am incredibly pleased and proud that we have now brought legislation to this House to fill a significant gap in New Zealanders’ confidence in the financial system that they are part of. We have seen the damage that has been caused by the absence of this scheme. We have seen the difficulty that has been caused for different Governments by a scheme that does this not existing. I think this is a very important and necessary addition to our financial stability regime.

There are other minor elements in the bill, including resolution powers. I think it is important that New Zealanders understand there is a way forward and a way out of any difficulties that they may see. I look forward to the Finance and Expenditure Committee considering this piece of legislation. I want to thank, in my final few moments, the many New Zealanders who have contributed already to this process through the consultation, and I look forward to more submissions as we go forward from here. I commend the bill to the House.

The question is that the motion be agreed to.

National recognises the crucial importance of both the stability of the financial system and also its efficiency, and in this bill, the Deposit Takers Bill, we see good intentions to hold up both of those principles; however, we think this is a bill where it is particularly important that the select committee provide further scrutiny. That is because of two things. The first is that this is a bill which imposes a number of new regulatory frameworks, for which the detail will really matter, and the second is that this is a bill that imposes a new levy upon New Zealanders who are choosing to make deposits in financial institutions, and it is crucially important that in making that levy we do not see costs imposed that outweigh the benefits of the proposed regime. So National offers our cautious support for this bill, noting, however, that the detail is critically important. We wish that the select committee process provide an opportunity for people to come forward with expertise about the practical import of the proposed regulations, so that we can analyse those and determine whether, in fact, this is an improvement on the status quo.

Now, the Minister of Finance highlighted three key aspects of the bill, and I want to go through each of those in turn. The first is around improving the range of regulatory tools that are available for the Reserve Bank when it comes to its prudential regulation and supervision functions. Now, in practice, the Reserve Bank, of course, is responsible for ensuring that the way in which our financial institutions arrange their risk and affairs does not unduly destabilise financial stability. I think it’s going to be really important, however, that those who are affected by those potential regulatory powers can provide advice and feedback on how they see them being applied. I don’t think anyone wants to see a situation where, with good intentions of providing more financial stability, instead we get a situation where deposit takers see a lot more red tape, a lot more cost, a lot more regulation that doesn’t necessarily benefit overall financial stability nor benefit individual deposit makers. So that’s the first part of the bill.

The second part of the bill is providing the Reserve Bank a stronger mandate, as the resolution authority, in event of financial distress or financial crisis. Now, again, analysing how that role will work in practice and whether the people involved in it will have the expertise required is another area that National will be focusing on in the submissions process.

Finally, I want to turn to the proposal for a depositor compensation scheme. Now, this is an area where National thinks we should be very careful. That’s because of the obvious potential for moral hazard. The moral hazard here is that banks and savers could potentially take bigger risks because they know they are insured, and what that could lead to is a cross-subsidisation effect where those who are taking bigger risks are able to do so and get greater returns for their deposits knowing that, in the event of collapse, they will be shored up by those other depositors who have made lower-risk deposits in lower-risk institutions. Now, of course, this moral hazard can be mitigated through the design of a levy regime, where a levy regime carefully acts proportionately to risk and where it ensures that underlying prudential frameworks disincentivise risky behaviour. However, it is because of this moral hazard that National stresses that the detail is very, very important.

I do want to remind this House that we have had recent instances in the Parliament where well-intentioned financial legislation has been introduced, only to become incredibly destructive because of the detail of the regulation. The example to which I refer is the Credit Contracts and Consumer Finance Act, which members across the House supported because of its good intention of stopping predatory lending but, when it came to the detailed regulations that officials wrote, what we instead saw was that it gummed up mortgage lending in New Zealand, created telephone books’ worth of new practices and procedures for those taking part in lending, and did so with no demonstrable benefit to consumers. So, with that example in mind, National does insist that the detail of this regulatory framework, and the proposed regulations to be written under it, is critically important. We note, also, that the bill implies increased powers for the Minister of Finance in terms of directing the Reserve Bank, and, again, we are always cautious about any increased powers of that sort, because we note the potential for them to be misused.

Looking at the bill in totality, we acknowledge and recognise the amount of consultation that has taken us to this point, and we acknowledge that there have now been successive reforms to the Reserve Bank framework such that the bringing together of these two Acts has been necessitated. For National, we do absolutely uphold the concept that the core principles for effective banking supervision should be in line with the Basel core principles—that is the international standard around prudential regulation of banks—and we note that there have been instances in New Zealand’s history where we have seen significant financial instability caused by deposit takers’ failure and collapse, and we do take a real interest in preventing those sorts of things happening again.

So, as I say, this is a piece of legislation where intention is one thing but the devil could well be in the detail. We offer our cautious support, and we strongly encourage deposit-taking institutions to make their submissions on how they think this will work in practice, to be clear about the impact they think this could have on depositors and everyday New Zealanders, and for officials to provide a robust cost-benefit analysis so that we can be satisfied that the potential improvements to financial stability are not outweighed by costs to the efficiency of our financial stability system. I look forward to the select committee process alongside my colleagues on the Finance and Expenditure Committee. This is one where we will have to furrow our brows and concentrate, because the potential implications of this bill, if done badly, are significant and could come at a lot of cost to New Zealanders. So National offers our support to take this bill to select committee.

你好, Mr Speaker. Thank you very much for the opportunity to take a call on the Deposit Takers Bill. As the chair of the Finance and Expenditure Committee, I’m really looking forward to this bill coming to us. As the Minister of Finance has said, this is the third bill of the Reserve Bank review that was instigated in 2017. Like many members of this House who do enjoy a good trilogy, I don’t think it’s a Hannibal Lecter kind of trilogy—Star Wars, there were too many prequels and now there are sequels, so I’m a bit lost on Star Wars. Actually, one trilogy that I really do enjoy is the X-Men. Now, if you could compare the Finance and Expenditure Committee to the X-Men, I think this bill would be the characterisation of Professor X in the sense that the bill is about assurance: it is a bill about assuring the consumers and Kiwis of New Zealand who put money into financial institutions that, if something goes terribly wrong, as we’ve seen in the past, the Government will be able to support them and to guarantee those deposits up to $100,000.

There are a number of parts of this bill which will indeed—as the member of the Opposition, Nicola Willis, has just spoken about—require deep consideration and critical analysis. One that I know the member that’s just on the other side of the House, the Regulations Review Committee chair—I will probably enjoy receiving their letter around the strict liability offences as well as the penalties that are in this bill. I’m looking forward to receiving that letter on what your particular views are around that, because there are a lot of regulation-making powers in this bill. Part 6 is the most important part of this bill, which is the actual depositor compensation scheme. But the Minister of Finance has set the case out very clearly for this. Consultation was done that led to this bill in 2017, 2018, and 2019, and it was off the back of the IMF review in 2014-15. So, on that note, I commend this bill to the House and look forward to analysing it with the Finance and Expenditure Committee.

Thank you, Mr Speaker. It might be my age—I have no idea who Professor X is. If I was to pick a movie trilogy that was analogous to this bill, it would probably be The Godfather—lots of shady dealings and a few people getting knocked off! Actually, here’s an analogy: in 2008, when the finance Minister in the Clark Government, the late Michael Cullen, needed to act quickly to shore up confidence in our deposit system, he implemented—during the proroguing of Parliament, actually; we were out campaigning quite heavily. I think it was in the middle of October that the action was taken—albeit with the support of National’s finance spokesperson, the Hon Bill English at the time—to set up what was then known as the Crown Retail Deposit Guarantee Scheme, and he did that under existing legislation. One section of the Public Finance Act—section 65ZD—gave the Minister the power to give a guarantee or an indemnity if it’s in the public interest.

About 11 months later, the then Minister of Finance Bill English had to do some tweaks to it, including putting a sunset clause on it, as the global financial crisis (GFC) passed, which was at the end of 2011, and he did so with a five-page Act. So we’re now wading through what is a 241-page bill that does more than that, but the lion’s share of the policy change in the Deposit Takers Bill is actually the setting up of a retail deposit guarantee scheme that’s enduring. I don’t know why on earth it takes 241 pages to describe that, particularly when there’s substantive work still to be done and the bill itself sets out a number of regulations and standards and fees that are still to be established years after this process started. So, if we’re to take the trilogy metaphor a little further, this bill, were it a movie, is very much in the concept stage. It’s at the white board stage. They’re selecting the executive producers and nobody knows who the actor will be, although I have a strong suspicion the lead character could change in about 11 months’ time, so we’ll just wait with interest on that.

As a member of the caucus who ran the gauntlet of the tremendous pain that was felt by those affected by the collapse of about nine, I think, finance companies during the GFC—most strongly by South Canterbury Finance, which lost about $1.5 billion of the $2 billion in deposits—it was very clear that our prudential regulation framing did need to be improved. It doesn’t matter that they got their money back; it actually caused a huge amount of stress and anxiety, health issues, pain in the community, and certainly some political challenges, and the best way to deal with that is to avoid it happening in the first place. So I think, actually, the prudential regulation of the sector is appropriate, but largely it’s in place.

I’m particularly interested in what the Minister said, and what the regulatory impact statement says, about moral hazard. Now, he seems to think that moral hazard can be managed by limiting the amount that’s covered or by putting other rules in place. The reality is that there are two types of moral hazard in this case: one is the behaviour of the banks and deposit takers, and the other is the behaviour of the investors. We can regulate the deposit takers all we like, but the investors are going to act rationally. There is a risk-return paradigm here: the higher the risk the greater the return; the higher the return the greater the risk. That is Economics 101. Currently, the 12-month deposit rate at the Westpac Banking Corporation, the Government’s bank, is 4 percent. At General Finance, it’s 5.1 percent. So there’s a 25 percent premium for the perceived risk—I’m not saying it’s a real risk; it’s certainly not right now—that a smaller organisation, that doesn’t have the sort of asset backing that Westpac does, might carry.

I haven’t had enough time to investigate what the interest rates actually were about 18 months ago, when interest rates were at rock bottom, but it’s likely that, on a proportionate basis, the difference between the registered-bank deposit rates and the building societies’ and the other finance companies’ deposit rates was probably much greater as a percentage—greater risk. Now, one must ask: if those deposits are going to be guaranteed by the Crown through a Deposit Takers Act, how on earth do we acknowledge the different risk? Because, effectively, there is no risk. I say that with the corollary that I’ve already mentioned that there’s a lot of stress and anxiety if an organisation collapses, but the moral hazard of the depositors—if they shift their deposits to the higher-return organisation knowing that they are inoculated against the collapse of those companies—is pretty high, and no amount of regulation or standards or rule making is going to change the sort of behaviour that is undertaken by depositors. It’s quite ironic, I think, that we’re doing this at a time when, I would suggest, the biggest financial risk on the Crown balance sheet is actually the Reserve Bank itself, and the estimates of the potential for loss on the large-scale asset purchase programme that the Reserve Bank embarked on is pretty high.

Now, some commentators are saying that, because it will affect both sides of the Crown’s balance sheet, that’s not going to be an issue. I’m not so sure I agree with that. Some of the numbers being mentioned about the potential for loss through that is in the billions, and, actually, the Minister of Finance has indemnified, not by law but by the existing Reserve Bank of New Zealand Act, the bank against any losses. So it was printing money knowing that the risk wasn’t theirs. So, when we’re talking about moral hazard, we’re seeing evidence of behaviour that could have been different had the indemnity not been in place. Would the Reserve Bank have acted differently had they not been indemnified? I would suggest so.

So the last thing I would say about this bill—and, actually, one of the things that I like about it—is Part 7, and that is the crisis and resolution aspect of the bill. One of the things that happened after the 2011 Retail Deposit Guarantee Scheme is that the Auditor-General reviewed that process and made some excellent recommendations, one of which was to have a better resolution and crisis management process in place so that we can try and cut things off at the pass, and it does appear as though those sorts of things have been very well addressed in this bill. But I agree with Nicola Willis—there’s a great deal of work for the Finance and Expenditure Committee to do, because the devil will always be in the detail of bills like this. There are 241 pages, and I expect Chlöe Swarbrick, Ingrid Leary, and Helen White will have already started on this. It’ll be a potboiler, I’m sure, and it’ll be one that will keep them up night after night, as will the submissions that will come pouring in. I might be flippant about that, but, actually, the risk that we do miss something, that we do set up a thing like the Credit Contracts and Consumer Finance Act is an example of where we might’ve missed some of that crucial detail, and it will be incumbent on those committee members to be diligent, as I know they are, in examining the bill and making sure it can be approved. With that in mind, I wish them all the best and our cautious support for the bill remains.

I’d just like to pick up on a couple of points made by previous speakers. The first one is Michael Woodhouse suggesting that the biggest risk to the Government’s balance sheet is the Reserve Bank. Actually, on this side of the House, we are well aware that the biggest risk is climate change, and we have taken prudent steps to manage that, including one of the most significant Budgets. We are accounting for climate change in that and in the ongoing work that many of the ministries are doing to futureproof our country. So I think the previous speaker’s comments show the level of seriousness with which they take climate change.

But the devil will be in the detail, and is in the detail, and it’s interesting that Nicola Willis and Michael Woodhouse seem to disagree about how much detail there should be: 241 pages is testament to the amount of work and consultation that has already gone on in this area and the care which this Government is taking to ensure that we get the balance right, and it is indeed a balancing act. When it comes to moral hazard, nobody is suggesting that there should be an incentive for people to indulge in risky behaviour, and that is why the level has been set at $100,000, taking into account what’s been mentioned through consultation but also looking at the sliding scale that has been set up very deliberately to ensure that higher-risk lending includes higher levels of input via the levies so that those behaviours can be managed. Now, yes, that will get thrashed out at select committee, but the mechanisms are already in place in the bill to do that.

So this is a very significant change to the Reserve Bank of New Zealand Act. In fact, Bell Gully has said that it is one of the most significant changes in a generation, and they don’t say that lightly. It’s been a long time coming, and we share the Opposition’s concern and memories of what happened after the global financial crisis (GFC) and the terrible situation it was for many deposit takers in New Zealand. So it’s a long time coming, and it’s great to see that it has been done so thoughtfully and carefully.

What it will do is strengthen governance, and it will also enhance director accountability and impose new standards and stronger powers for the Reserve Bank. So all of that, really, is around ensuring that some of the cowboys that are currently operating around the margins of the sector can no longer operate, and, indeed, there is a mechanism by which the Reserve Bank can apply to the District Court to ensure that certain players in the market are not trusted to take people’s deposits. So, again, that’s a good risk mitigation against the moral hazard that has been discussed.

I think this is a really good, thoughtful piece of legislation. I echo the requests from Opposition members for deposit takers and others impacted by this to please give us your thoughts. I can assure this House that we will be going through this very, very carefully. It’s an important piece of legislation, and I think that all New Zealanders can feel assured that we are not going to see the level of exposure that happened after the GFC, which caused so much trauma to New Zealanders everywhere. I commend this bill to the House.

Tēnā koe, Mr Speaker. Tēnā koutou e te Whare. I’d like to start my contribution, firstly, by just saying that the financial system really exists to serve people, and not the other way around. And our economic system is there to serve people, and not the other way around. I think, in the last few decades, we’ve seen financial services significantly grow as a sector of the economy without actually contributing to growth of productivity or the things that people need to live good lives. That’s something we don’t get much opportunity to talk about in the House, but I think that, here in the Greens, we acknowledge that it’s really important that the way in which the Government regulates and looks after the financial system has to be done in a way that is there to benefit all people—you know, people are not existing simply to serve the gods of the financial or economic system, and it has kind of gone the other way.

The second thing I want to say is that the Green Party will be supporting this bill, and we have a very small but significant win in this bill, which is the depositor compensation fund, as well as a previous shift, which was the move to the board making the decisions and not just the Governor of the Reserve Bank. These are issues that the Green Party, I believe, was the first to raise in Parliament, and I went back to look at when the Green Party was calling for this, and the oldest press release I could find was from March 2013. So I want to acknowledge previous Green Party finance spokespeople: Russel Norman, who was calling for deposit insurance back in March 2013, some months before the OECD came out and urged that New Zealand take up deposit insurance as well as capital gains tax—also something the Green Party had been calling for for about a decade or more before then.

Just going back through it, of course, in June 2016, November 2016, May 2017, and on and on, we have press releases from the Green Party calling for the National Government of the day to implement deposit insurance, and, of course, in the last term of Government, when we did have an Associate Minister of Finance who was a Green. I believe most of the critical Cabinet decisions were made about this legislation, so it’s nice to see it finally come to fruition.

What I think is notable—I heard Nicola Willis, the finance spokesperson for the National Party, talk about moral hazard and some concerns the National Party might have that having deposit insurance would encourage greater risk-taking behaviour on the part of financial institutions. And I have to say this: in some ways, having a deposit insurance scheme, or, as they call it, the depositor compensation fund, is actually an improvement on the status quo, where what we’ve seen is large financial institutions becoming too big to fail, and even though there has been no kind of formal fund or scheme in place when they have gone under, they inevitably get bailed out by the Government, and that’s just, you know, by all the people who are contributing. And what misses out at that point is other crucial public services like income support, like our hospitals, and pay for our teachers and our nurses and our doctors. So, you know, when South Canterbury Finance was bailed out by the Government, it was over a billion dollars, and, of course, in today’s dollars, that would be much more. So that came at the expense of other important, crucial Government services that benefit all New Zealanders, and that was quite risky decision-making.

This scheme that has been set up, and what’s proposed in this legislation—of course, it will have to go through the select committee process, and we will want to make sure we get it right. But I think quite a lot of time has passed and there has been quite a lot of work done on it up until this point, and it is an improvement on the status quo. I guess I should say that, globally, the finance sector has become bigger and more complex and too big to fail. Some people working in that sector have become extraordinarily rich, and in some respects it’s been at the expense of everyone else, and as it becomes bigger and more complex, Governments get held to ransom, because the Government is so concerned about what happens if we have fiscal instability and the impacts on the economy for ordinary people—potentially, them losing their jobs—that they can’t afford to let those institutions fail and suffer the consequences of their risky decision-making.

So I think this is, at least, a really sensible way to do that, because it means all people who are putting money into a financial institution, saving into, investing into it—whatever it is—are making some proportionate contribution to the fund, and then people who have deposits up to $100,000 will have that covered by that fund in the case where an institution goes under. So that is a fair and proportionate response, and it means that those who don’t have the financial resources, who don’t have the wealth to be investing in institutions like that, aren’t paying to bail those people out. Also, there’s the cap of $100,000—so, I mean, there’s fairness in this in that people who have super-large investments, which is a tiny percentage of the population, are not going to be bailed out to that amount in that circumstance by this particular compensation fund.

So the Green Party is happy to see this bill come to the House. I think it’s quite overdue at this point, but it’s great that it’s come, and I hope that we’ll be hearing from a lot of informed submitters and be able to make some improvements at select committee. But I do think that we do need to think about the bigger picture and what role finance plays in our economy and in our society, and how important it is for us, as the representatives of the people in this House, to make sure that we have a system that is looking after our people. In order to look after our people, we have to look after our natural resources and our natural environments, and so it’s really important that money doesn’t become the thing that is more important than everything else. Money is the means by which we—you know, it facilitates the trade of goods and services, but that’s just one small part of what it means to be a human and to have a good life, and we need lots of other things to live a good life. This is the place where we come together to make sure that the rules are fair and that the system is fair, and we have a lot of work to do in that respect.

Public trust in the banking sector is essential for the running and functioning of the New Zealand economy. Savings aren’t safe under the bed, but, while, potentially, this is a nice backstop to a financial economy which sets New Zealand in line with the OECD, there are some other principles we should discuss around the bill, and I hope they will be taken into consideration in the select committee.

We’re giving the Reserve Bank of New Zealand a significant suite of regulations and powers, an expansion of these powers, as the lender of last resort. One can argue that protection is already in place by several instruments. One is high capital ratios set for the banks, which places the risk to protect the deposit takers with the banks and not at the feet of Government or a specialised fund. Open Bank Resolution processes are the second element that now also help protect depositor insurance—and, with this piece of legislation, this looks like we’re putting ambulances at the top, middle, and bottom of the cliff, which does not make sense because the higher level of risk of a financial institution failing is when it doesn’t meet its capital ratios requirement, which the Financial Markets Authority and the Reserve Bank should understand pretty fast and pretty quickly.

Finally, a depositor, as member Willis said, can’t actually chase around for higher interest rates with $99,000 per institution. Also, it encourages potential non-bank lenders to take on risky projects or leverage their balance sheet. No one knows how the levies will be set except banks, who have preferred terms for what the taxpayer is up for. ACT feels that the Government should slow this bill down; listen further to institutions. We’ve seen with the Credit Contracts and Consumer Finance Act (CCCFA) what can happen if we don’t get the devil right in the detail. ACT believes this is the last thing New Zealand needs now, and that existing protections are in place and we should protect the citizen using those macro tools.

Timely payments is not clear. In the UK, as an example, if you have a situation where your bank has had a run on it, there’s a guarantee to pay in seven days or more, and it’s adjusted for inflation. One of the things about bank runs, like Northern Rock or several of the bank runs in the United States, is people just run to take all their money out. It’s a panic, and there’s no guarantee with this system in place that it’s any better than adequate capital ratios and encouraging the major banks to participate fully with supporting that balance sheet, even if they’re Australian banks. And, effectively, why you have a bank run is somewhere along inside the business—and all our banks are vertically integrated—their mortgage book blows out and they reach into the depositors’ money to actually take that and subsidise that. That is one of the reasons why these financial institutions fail.

In ACT, we also believe that, for taxpayers, it would clearly be a wish to see tight, defined constraints around the ability of Government to commit public funds in a financial crisis, which no doubt will lead us back to this place for appropriation from Parliament. Confidence in the financial system and its stability already exists. What’s the big question to rush this? Why do we need to not go through the detail? It will actually take, after Royal assent, two years to make this workable in the marketplace. So there are a lot of things to be thought through, and even though the bill has 250 pages of slammed-together concepts, it doesn’t actually deal with those three levels of bank protection that the Reserve Bank should have highlighted in its documentation.

So, to enact a single regulatory framework for deposit takers, there will be disadvantages to credit unions. There will be disadvantages to big banks. But I think it’s worth listening to big banks on this occasion to avoid the CCCFA scenario.

Timeliness of payments is a vital thing once people lose confidence in the financial system. So the seven days that resulted from the mitigation of the Northern Rock situation in the United Kingdom was one where the people were standing in the streets for seven days. They wanted all their money out, not just what the deposit was at the time. So we hopefully will never see that situation in New Zealand. We need to consider that making commercial banks stick to the adequacy ratios is a more powerful tool than what we’ve got on the table here today.

So ACT would like to see this through the next stage of the select committee. We won’t be supporting the bill at this stage, but we will give it a tight consideration, and we’d like those points to be considered by the Reserve Bank, Treasury, and the Minister of Finance. Thank you, Mr Speaker.

Kia ora, Mr Speaker. It’s been interesting listening to the speeches around the House this afternoon. Barbara Edmonds definitely whet my appetite, and then, obviously, the Hon Michael Woodhouse continued that, in talking about this omnibus bill and the trilogy and what movies we can connect to this.

So I have to admit that I was a bit of a boy back in the day, and the Die Hard trilogy—Bruce Willis, yes—was one of my favourites; I can’t say a few lines of that in this, but I’m trying to think how the hell it would work in this situation. Maybe you’ve sort of got reckless deposit takers being the bad guys, and then John McClane being the good guy who maybe comes in and saves the day, which is what the Government’s doing, coming in to support this. Or maybe Pirates of the Caribbean, but that’s a bit predictable. You’ve got the bad pirates, the good pirates; you’ve got those who are sort of doing money stuff and it’s pretty easy. Then I did actually think about Austin Powers. Dr Evil; remember him? Was it $100,000 [Mimics Dr Evil]—see what I did there—actually being the limit, protecting 93 percent of depositors?

But I digress. I am being frivolous, and I won’t even mention The Terminator or Mad Max or any of those other ones which would just be absolutely ridiculous. But this is good legislation. It was 2017, as was said earlier by the Hon Grant Robertson, when this work was being done, and I look forward, as a member of the Finance and Expenditure Committee, to scrutinising the bill, as has been talked about today—to look deeply into this, to get into the numbers, and to ensure that we have good legislation that will protect people into the future, promoting prosperity and wellbeing for all New Zealanders.

Thank you, Mr Speaker. It’s very good to be able to rise and speak on this bill, the Deposit Takers Bill. As some of my colleagues have already noted, we will be cautiously supporting this bill and look forward to it being discussed further at the select committee stage.

There some key aspects of this, obviously, as our friends over the way have just noted, in respect to $100,000, the key protections there—yes, we can do that too [Mimics Dr Evil]. I think that’s important because it does afford mums and dads and other deposit takers quite a lot of assurity that, in the case of financial instability or a possible run on banks, their nest egg and everything that they’ve worked hard and saved for will be protected. There’s also some key expansion of powers for the Reserve Bank (RB) in there, to step in, in the case of a severe or significant situation—they can get in there and they can carve bits off and transfer or sell out viable parts—which does give them an increased amount of power. That is noted, but there is the potential that that could be used for good as well. So we do encourage further investigation of that.

We all want a stable and efficient financial system. You know, that is very true. And, as we’ve seen over the past 15 years, when the system hasn’t been so stable, it is very important that that stability is there. We do note the steps that reserve banks took, not just in New Zealand but internationally, to shore up the system and to shore up deposit holders after the global financial crisis. But we would want this to see further scrutiny because we note that there has been discussion here around risk and there are concerns that this removes the risk. It removes it on the financial institutions, be they first tier, be they second tier. It also removes the risk, obligation, or personal responsibility on the person that is making the deposit.

Now, if I know that my deposit is going to be backed up and looked after by whoever I deposit it with, why would I go along and give it to a first-tier lender such as Westpac or ASB and get a small percentage when I can go and take it to a much higher-risk deposit taker and get a significantly enhanced rate? I think that has the potential to create some issues in the system, because the risk isn’t really owned by the players; the risk is, effectively, absorbed by the Reserve Bank. And I think we already have a pretty stable system in that regard. We do have quite a well-protected system. We do have capital holding requirements, and these have been enhanced. I think New Zealand stands out quite well as a country whose financial system is quite well protected in that regard.

A lot of people say, “What happens if the Australian banks collapse?” I fortunately, or unfortunately, had the pleasure of working for Australian banks for about a dozen years, and they always looked down on their New Zealand cousins, which annoyed me tremendously. But we did have a very good thing in that the Reserve Bank New Zealand had required that New Zealand banks have a carve-off and had to stand on their own two feet. So, in the case of things going extremely pear shaped in Sydney or Melbourne and the Commonwealth Bank of Australia or Westpac or ANZ falling over, the New Zealand equivalents, the New Zealand subs, would be able to stand on their own two feet. So I think that’s important to take into account.

I would also be concerned because I know that there will be—at some stage, the RB or someone else will have to determine what levies are paid. If you’re determining that, it doesn’t make sense for a very safe deposit holder to pay the same levy as a much riskier deposit holder. Do you get into the situation there where the RB or the Government or whoever it may be is, effectively, picking winners and losers in this game? I think that’s an important consideration to note.

We cautiously support the bill on this side of the House. We note that it has some good points. We note that mum and dad deposit takers will be very happy to see some safety—up to $100,000 in their deposits—but we would also want it to be rigorously scrutinised. I know my colleague the Hon Michael Woodhouse noted there were 240-odd pages to be combed through, and we hope that is done very rigorously at the select committee stage. Thank you.

谢谢, Madam Speaker. It gives me great pleasure to rise to speak to the first reading of the Deposit Takers Bill, which is being commended to the most excellent Finance and Expenditure Committee. I’m not a member of that committee, but I understand that $100,000 of Kiwis’ deposits in eligible institutions will be guaranteed in the hopefully rare event that that institution should fail. This bill would protect 93 percent of depositors fully.

I remember the collapse of Barings Bank and the subsequent collapse of many banks later during the global financial crisis. On a more personal note, my father very nearly lost every penny of a house sale, as they deposited the money just in preparation for a purchase. Fortunately, it was averted, but it would have been catastrophic. With regard to trilogies, I feel that The Lord of the Rings, with the Hon Grant Robertson cast as Gandalf, is a more appropriate trilogy. I commend this bill to select committee.

Thank you, Madam Speaker. Obviously, the number three has been well traversed in this House today. So, rather than talking about trilogies in pop culture, I think I’d come back to something that I know a little bit better, in the field of classical music. I’d like to talk about a piano trio. In a piano trio, often we have a viola, we have a cello, and we have the piano. I think of this bill as something quite like the function of a piano in that trio.

What I mean by that is that often the piano just kind of chugs along, makes sure that everyone is kept in time; the bassline is there, keeping it all together. And that’s the point that I’d take: being the “bassline”, being the absolute safeguard in our financial system, is this bill, and the levy system that we set up, as well—the scheme making sure that 93 percent of depositors and their money are protected; making sure that the scheme is pre-funded by all the levies that we will take. And that’s being supported by the Crown, to be that backstop, so that, for the mums and pops and everyone in New Zealand, their money is well protected. Therefore, I commend this bill to the House.

Thank you, Madam Speaker. It’s a pleasure to rise and take the final call for the National Party on this bill, the Deposit Takers Bill. As we have heard from our previous speakers, we are supporting the bill at its first reading, cautiously—cautiously supporting it, I would say. Because, in the first instance, obviously the stability of our financial sector is very important, and on that basis we absolutely want to ensure that it is enhanced where it can be appropriately done, and needs to be done—we absolutely support those aspects. There are a few elements, which I just want to touch on through my contribution, where I have some questions or some areas of concern that I hope will be addressed through the select committee process, as this traverses that aspect as well.

The initial one that I just want to touch on, and what we’re talking about here, is to try and safeguard or protect the money that has been deposited in these institutions, by everyday Kiwis presumably, so that they can have confidence that the money will be available when they need it, for whatever purpose life may bring for them. Having a cap of $100,000—I’m interested in that figure; as to exactly how that came about, noting that in Australia it’s $250,000 under their scheme, and $100,000 in this day and age doesn’t go particularly far in terms of making up a house deposit. I note the carve-out for examples where someone has just sold a house and they have a significant amount of cash, but there doesn’t seem to be a corresponding allowance for someone who is building up a deposit to buy a house. Indeed, a 20 percent deposit on a million-dollar house, for example, is $200,000; so that’s double the cap as it is proposed here. So I just wonder whether or not that could see some flexibility as well, because I would suggest having more than $100,000 on deposit doesn’t necessarily make someone financially stable enough to weather through the loss of that money if it was not caught under this cap. So that is one question I would have.

Having said that, though, for me, a lot of this comes back to personal responsibility. Now, anyone looking to deposit some money into a financial institution should, rightly, be considering the status of that financial institution: how safe is my money going to be if I give this money to a bank or to an institute? Am I likely to see it back? And, obviously, that’s reflected through the interest rates that are offered by those banks as well. We heard, I think it was, Mr Woodhouse talking about that earlier, in terms of the varying rates between a mainstream bank like the “big four”, as it were, compared to another financial lender, who may offer a higher rate to try and secure a deposit in a competitive market on the premise that, actually, they may be perceived—whether that is just a perception or otherwise—as being a slightly higher-risk investment for that depositor. Of course, the attraction for the depositor then being that they might secure a premium of a percent of more over the other banks, depending on the situation, and so that has some appeal.

So, of course, it is risk versus return, and this is a pretty fundamental tenet of economics here that we need to be mindful of in this situation, and then asking the question “Well, is it appropriate for the Government to be stepping in to try and come up with a solution here? Is it really needed? What are the costs that then might flow through?”, because I am very mindful of costs at a time when we are experiencing a cost of living crisis unlike I can remember. We are now talking of potentially—probably—putting additional costs on to depositors, and I am really concerned about that, because we are at the same time, of course, trying to encourage people to save more. Now we’re looking at impacting on that by having a higher cost for them. Because, ultimately, if the Government is putting this system in place and there’s a levy being imposed on these deposit-taking institutions, well, of course, that cost for those businesses is going to be passed on, either in terms of a reduced deposit rate that they offer to Kiwis looking to deposit money with them or, on the other side, an increased lending rate to people who are looking to borrow from that institution, which, presumably, is borrowing money on the one hand to lend out on the other side.

So, at a time when you may be looking at somebody wanting to borrow money to progress a business idea that they’ve had, a lightbulb moment, an inspiration—and we have hundreds of thousands of everyday businesses in New Zealand doing amazing things. Typically, I think, we’ve had an environment that fosters that sort of innovation and have-a-go spirit, and I would be concerned if they were then having to experience, perhaps, an increase from a 6 percent to an 8 or 10 percent interest rate on the loans that they’re able to borrow money at from these deposit-taking institutions, because of the increased levy cost in part. So there are those costs that I just don’t see appropriate consideration being given to at this stage, and that is, for me, probably one of the biggest concerns I have—as I say, a cost of living crisis and here we are putting more costs on to depositors and lenders.

But, of course, we also have a Government that can never miss an opportunity to take control of something that they may or may not necessarily need to. We just saw that in my contribution, last week, on the Dairy Industry Restructuring (Fonterra Capital Restructuring) Amendment Bill that they’re putting forward, looking to get their fingers more involved there, have more say and more influence. And here they are again, looking to do exactly the same on this one. So we have a Government now saying, “Hey, we will be undertaking all of the credit assessments for these financial institutions. We will tell you, as New Zealanders, which of these institutes are best for you to invest in, which are the most risky, and which are the least risky, and therefore where you should place your money.” Now, ultimately, I’m not confident that that is a role that Government should play. Surely that is a position of the market to work through, who is or isn’t a safe bet, and that is indeed part of what I mentioned earlier around the risk-assessment element that depositors would be considering—risk versus return—when they are looking at making a decision around who they may or may not engage with in those financial arrangements.

So here we have a Government, instead, that’s looking to put that in place, to then levy on that basis—presumably making the levy based on a credit-risk assessment basis; so, therefore, the riskier the deposit-taking institution the higher the levy would be for them, compared to someone with a lower-risk profile. And, ultimately, it risks speaking to the arrogance of a Government that continues to think they know best for everyday New Zealanders. Regardless of the situation, they have the solution! Kiwis shouldn’t need to use their own minds, because here we have a Government that will do all the thinking for us! Well, ultimately, I think the market should be able to do that. Kiwis are generally pretty smart. They can make some of these decisions off their own bat and don’t need this sort of influence. And, actually, it’s a little bit like the jobs tax we’ve seen proposed as well from this Government, where they’re putting an insurance scheme in place for anyone who may lose a job—and I’m not sure whether or not that includes any outgoing members of Parliament if there was an electoral change, for example—but the impact there obviously is that it provides a solution that may or may not be needed in some instances, but ultimately ends up adding cost. And here we are again adding more cost from a Government that thinks they know best.

So these are some of the real concerns I have about this particular bill, because, as we’ve heard, I think, from Mr Uffindell as well in his contribution, the capital adequacy requirements that were brought in post global financial crisis helped to address some of these concerns, right? Because we came through that in pretty good shape comparatively, in a global context; our banking system held up pretty well. It got pretty close, as I understand it, in some instances, to there being real issues, but we got through. That having been said, there were obviously some changes brought in off the back of that—the capital adequacy requirements off the back of the Basel Accord. Basel II, I think it was, and then Basel III as well, still coming into play, saw a significant shift in the level of capital that had to be held by a bank. Now, obviously, that comes at a cost as well. So we saw an increasing margin being applied by the banks, between what they are borrowing, or buying, money at—the BKBM rate—and what they’re then lending out to everyday borrowers. That margin had to increase to allow for that cost of capital that they then had to hold over and above what they had previously held. So this is another example of that sort of thing, where we’re saying, “Hey, we’re going to see more costs coming into these businesses.” But, actually, we’ve already got some elements of protection in place. So do we really need this?

So I’m really interested in seeing what comes through the select committee process in that regard. I do just want to pick up a quote from the regulatory impact statement: “There are significant risks associated with implementation of the Deposit Takers Act, and the potential for unintended consequences. The Reserve Bank is planning is to increase resourcing”—well, how about that? More bureaucrats. What a surprise! But, ultimately, the unintended consequences is an area that we really need to see thrashed out, because I don’t have confidence at this stage that we’ve fully understood where that may sit or what might fall out off the back of that—as we saw with the Credit Contracts and Consumer Finance Act issues as well.

Lastly, I just want to pick up on the director requirements. That’s a small part of this, but an important part, I think, where it looks to change the due diligence liability requirements for directors carrying out due diligence, such that it excludes that from being eligible to be covered by directors and officers liability insurance. And that is a significant risk, I think, for any director, who will then likely take a much more risk-averse position when determining a potential investment opportunity. So that has the risk, or potential, to slow down our economic contribution, our productivity as well. So there is a number of areas that I think we really need to traverse here, and I am looking forward to some robust select committee discussions on it. Thank you, Madam Speaker.

It’s a pleasure to take a call on this bill, the Deposit Takers Bill, but also to have the benefit of being a Finance and Expenditure Committee member. So I will be listening to what I’ve heard today and I’ll be taking that back into the select committee process.

But it does strike me that, in fact, there is a difference emerging in the approaches of the two main parties on this bill, and I’d say it’s a very important one to note. What happened in the global financial crisis was that we didn’t have an appropriate system, so people who were promised high interest rates had to be bailed out completely. And it’s very much that old adage of “socialise the risk, privatise the profit”, because it was the taxpayers who had to fork out the money to cover people, to give our system stability.

This bill changes that. It shores up the system. It makes sure that it is actually a very stable system with the right regulations in place, with the right accountabilities in place, with the capacity to have a licensing regime that covers all deposit holders. At the moment, the proposal is $100,000, and it is very likely that the higher the fees are the higher the interest that’s being promised is—that it’s more of a credit risk—so they will pay higher amounts of fees towards the scheme. It is, in fact, supposed to be self-regulating and pay for itself. So no longer will the New Zealand taxpayer, who got nothing out of the high interest rates, end up forking out for the bill. That is actually a real move forward. That is a mature system and, hopefully, we will end up with a much more stable system than we have ever had, one that New Zealanders can rely on and one that’s actually better for taxpayers, and that’s a win for me. I commend this bill to the House.

The question is, That the Deposit Takers Bill be considered by the Finance and Expenditure Committee.

Motion agreed to.

Bill referred to the Finance and Expenditure Committee.