Deposit Takers Bill

Members, we come now to Part 9. This is the debate on clauses 472 to 490 and Schedule 3, “Repeals and amendments to other Acts”. The question is that Part 9 stand part.

Thank you very much, Mr Chair. My questions are in regards to the replacement sections that have been inserted under clause 486—in particular, replacement section 25C, inserted by clause 486 of the bill.

So this is “Expenses or capital expenditure in connection with financial institution in serious financial difficulties”. Obviously, the whole point of this bill is to provide a mechanism to deal with this exact scenario. What’s interesting around replacement section 25C(1) in particular is that it provides the powers to the Minister to approve the expenses for capital expenditure in relation to the situation, whether or not there is an appropriation by Parliament available. That’s pretty reasonable in regards to the powers that are being provided in regards to that, because normally in this House the allocation of any capital or expenditures is through a formalised appropriation.

Andrew Bayly: Not always.

SIMON WATTS: Not always, but in these instances, you know, the control environment around that is one in which I’m seeking some clarity from the Minister in regards to a scenario around what that would look like, and the process in which we would expect to ensure that where there isn’t an appropriation by Parliament—what that would look like.

Replacement section 25C(2) refers to “Public money may be spent, without further authority than this section,”—again, linking back to the other aspect. So a little bit of clarity in regards to that aspect and ensuring that Ministers are not off spending money willy-nilly without appropriate controls.

I’d never do that. This, effectively, brings into line the regime that’s covered by this Act with what happens in a civil defence or health emergency. So, essentially—under various bits of legislation—it is possible to incur unappropriated expenditure because you just have to do it. You know, there is a major event occurring and there’s no time to come to Parliament and seek that appropriation. This sets up a similar process here. It’s a longstanding issue with the Public Finance Act.

It is limited by way of what is in the replacement section 25B(2), inserted by clause 486—this is obviously an amendment to the Public Finance Act we’re dealing with here—and it has to be in the “situation [where it] is necessary or desirable to do either or both of the following: (i) maintain the stability of the financial system: (ii) maintain the continuity of systemically important activities undertaken by 1 or more regulated entities; and (b) that there is no reasonable prospect of the situation being adequately dealt with to the Minister’s satisfaction in a timely and orderly way other than through exercising the power under section 25C.” So highly exceptional circumstances, the stability of the entire financial system, systemically important activities by a regulated entity—so, essentially, a Government entity being compromised—and that there would be no way of dealing with it under a normal circumstance.

Then, should it happen, replacement section 25C(3) means that we have to report it in the annual financial statements and it has to go through either a Supplementary Estimates, like we had today, or an Appropriation (Confirmation and Validation) Bill. So there’s plenty of checks and balances, but the kind of emergency is a financial emergency akin to a civil defence or a health one. This will make it consistent with those provisions.

Yeah, thank you, Minister—that was very useful. Maybe just a slight elaboration: could the Minister contemplate, given the history of New Zealand, what circumstances he may have applied it? For instance, when Bank of New Zealand was in trouble back in the 1980s, I presume that may have been one where we may have applied this. Certainly where the continuity of systemically important activities like the payments in New Zealand was to have trouble—I imagine that would probably lead to this power being exercised. But when you look at the make-up of the banking sector in New Zealand and the deposit-taking sector—obviously, we have four or five very significant banking operations, and then we have a number of smaller deposit takers. Would he envisage exercising these specific rules for a deposit taker who might have less than 1 percent of the market share? So I’m just trying to understand where his views would be that you would cut in, and where it might be, and using history to maybe demonstrate that wisdom that he may have to display—hopefully not in the next three months—but if he were.

I don’t think there’s a need to stretch this particular part of the debate out. The clause that I read out, 25B(2) is very clear on the extent of the kind of issue here. It is not a minor or trivial matter; it is a matter where there is a systemically important entity involved or where the entire stability of the financial system is involved. Any Minister would take advice on where that kicks in, but it’s clearly not a minor matter. I’m not going to choose to speak about any specific event at this time.