R DOUG WOOLERTON (NZ First) Link to this
As I recall, last time when I opened up and had 2 minutes on this bill I talked about why people in New Zealand are far keener on putting their money into property when the move by the Government and other people is to encourage them to put it into shares and businesses. I said that that is because a house or property cannot disappear and turn itself into somebody’s Porsche 911 or something like that.
This No. 3 amendment bill will go some way towards requiring finance companies to have a credit rating. There is much angst over that in the financial sector, not because of the fact that finance companies should have a credit rating—they are happy enough with that—but, in fact, over how it should be done. People came to the Finance and Expenditure Committee and said to us they were worried that a credit rating would have an overly prescriptive nature when it came to administration, and may not give as much credence to the fact that there was a certain amount of asset backing to a particular financial institution; another institution with a lesser asset-backing but with different administration systems could end up with a better credit rating.
So there were arguments about how that provision would play out. But, by and large, submitters agreed that the public need more information. They need some sort of a guide as to where to put their money. Only time, we think, can give any surety to the public when it comes to investing funds. But one thing is that we cannot go on as we are, and we have not progressed, it seems, since the late 1980s when we were held up around the world as the Wild West of the financial world. Although the recent credit crunch and finance meltdown have not been that bad, a lot of improvement is certainly needed. This bill goes some way towards that.
New Zealand First would like to go further, and at some time in the next Parliament we will bring legislation to the House that we think will help towards looking after old people—
Absolutely, I say to Mr Foss; transparency to the nth degree. People can see, going through our trusts at the present time, how everything is kosher there. There is no fraudulent behaviour. There is no corrupt behaviour. There is nothing wrong there. We feel that if we are happy to have all of those transactions open to the public, with the absolute transparency that people are seeing today, other parties in this House should join, for the benefit of the public and to give everybody surety, in opening their trust accounts in the same manner. Whatever the Serious Fraud Office wants of us, we believe that in a non-partisan way, other parties should front up to open their books, thereby giving comfort to the public and the news media, who have been throwing a lot of harsh words around.
So we are in favour of transparency. [Interruption] I am pleased to hear the voice of my colleague Dail Jones behind me, because he is the member who has been entrusted with the task of giving some surety to retired people, in particular, as we move forward. I say to Mr Jones that I think he is on that case and we look forward to that in the next Parliament. Is that correct?
Dail JonesSo we can look forward to that—yet another reason, if I may say so, why people will vote for us at the coming election. They will have the surety that they will have something done, unlike if they vote for the National Party, which has thrown stones and done nothing for 9 years. It is even doubtful whether National will be able to do anything post election, because, sadly for those members, they will find themselves back on the Opposition benches.
But I come back to the point that there is need for this legislation. This bill goes some way towards a solution. It is not the total answer. Risks cannot be taken out of financial transactions. Along with this, it is absolutely understood that there is a need for the public of New Zealand to be given more information, as well as a need to look at a credit rating system. This bill goes some way to doing that.
Dr PITA SHARPLES (Co-Leader—Māori Party) Link to this
Tēnā koe, Mr Assistant Speaker. Tēnā tātou katoa. This bill has the primary purpose of implementing regulations for non-bank deposit takers. It is interesting to even consider what is meant by the concept “non-bank deposit takers”. It reminds me of a longstanding discussion about the use of the term “non-Māori”, a term that places all the emphasis on what people are not, rather than on what people are. I have always considered it more appropriate for people to define their own identity, their own cultural heritage, whether it be as Pākehā, tauiwi, Scottish, African, or Tongan. So I come to this bill wondering how it is that we are implementing regulations for finance companies, building societies, or credit unions by considering what they are not; in other words, deposit takers not of a bank. This bill, therefore, defines the default position—what these deposit takers are if they are not deposit takers of a bank.
This bill implements a new framework that will require all deposit takers to comply with minimum prudential standards, as enforced by trustees and the Reserve Bank—standards that in themselves will ensure that care, caution, and regard are taken in providing for the future. We in the Māori Party can think of no better goal than to legislate for care and caution in the context of investment strategies. Such principles will be welcomed, we know, by the lobby group Exposing Unacceptable Financial Activities. It has been established to stand together in solidarity with the victims of the finance and investment industry collapse. Its very reason for being is to ensure that New Zealanders are given every opportunity to receive information, to apply for legal aid, and to pursue multiple avenues to reach a just resolution for all victims of failed finance companies. So we come to this bill alert to their suffering and wanting to see how this legislation will allow deposit takers to better care for and protect the finances of their investors.
Exactly how severe this crisis has been on New Zealanders is perhaps best represented through the words of Exposing Unacceptable Financial Activities coordinator Suzanne Edmonds: “Investors lives are in total despair coupled with economic insecurity, such as losing their homes, while New Zealand sits back watching the games and neglect by those who have a duty of care, slopping around discrediting us all.” The Māori Party takes very seriously our mission to listen and to hear the voices of the voiceless. We have heard the pain of the people who have taken the fall for the company mismanagement. We have heard the pleas for accountability and the collective stand to insist for compliance enforcement upon the finance industry. We must not overlook the victims of finance collapses, including those of Bridgecorp and Blue Chip.
Hon Mahara OkeroaCool, bro. The Māori Party is aware of a number of whānau whose quality of life has virtually disappeared overnight—whānau who lack the funds to take legal action; whānau who have had to sign their homes over in mortgagee sales simply to stay afoot. The headlines may highlight the dollar amounts lost and the fact that 13 firms have failed in the last 18 months owing 61,341 investors $1.5 billion, but what has hit home hardest for us is the real stories of lives hurt by Hanover Finance—victims of money managers who have mismanaged their life savings; stories of real grief.
We were interested in the views the Institute of Chartered Accountants of New Zealand expressed to the select committee. It believed that the case for a more prescriptive, heavy-handed prudential regulatory regime for non-bank deposit takers had not been sufficiently made. Its view was that the collapse of finance companies is not sufficient justification, as failures are happening in other jurisdictions that are more regulated than New Zealand. Its view was that such measures should be used only in extreme circumstances where the risk of the market failure and significant harm were relatively high. However, we cannot overlook the fact that since the Institute of Chartered Accountants of New Zealand made its submission in March this year 16 more finance companies have entered into difficulties, with some entering into moratoriums and some going into receivership, and that eight more mortgage trusts or property funds have closed or suspended the repayment of investors’ funds.
Perhaps the more compelling analysis, in our view, was the advice we received from the Federation of Māori Authorities. It contended that regulations to increase prudential standards are urgently needed to tidy up the sector and make it more accountable to its investors. In fact, if anything, they should have been in place a whole lot earlier. We know the reality that a lot of mum and dad investors, including Māori, have been investing their savings in finance companies without realising the actual nature of the risk that they are exposed to. It is that long lost hope, when our families are struggling to survive, to pin our trust on and have confidence in finance companies to create the pot of gold at the end of the rainbow—a hope that, as the reports remind us, is often not well placed, as these companies do not necessarily have the prudential rules and standards in place to properly protect their investors. The common misconception is that there are standards in place and proper monitoring, but there are not. I commend the advocacy of groups such as Exposing Unacceptable Financial Activities Society, which has so bravely represented the realities of those who may well have otherwise lost hope.
We in the Māori Party will support this bill, as we believe the changes will allow deposit takers to better care for and to protect the finances of their investors. We also support the fact that the changes allow the Reserve Bank to increase its ability to regulate, monitor, and protect the New Zealand finance system and economy. Such attention to the financial infrastructure is, we believe, important for the kotahitanga—the nationhood—of this place, this country of ours. Finally, we want—and I am sure every other member of this House joins me in this—to minimise financial collapses. We have heard the impact the collapses have had on families and on the economy. For all these reasons, we will vote in support of this bill at its second reading.
CRAIG FOSS (National—Tukituki) Link to this
The National Party is voting for the Reserve Bank of New Zealand Amendment Bill (No 3). I acknowledge the previous speakers and I will just touch on a couple of points Dr Pita Sharples raised.
Currently there are Acts and legislation to regulate banks. With reference to that word “bank”, an institution cannot have the word “bank” in its name unless it is regulated by the Reserve Bank. That is why the other institutions are described as “non-bank”, because a completely different tree of regulation is set up—there are trustees involved etc. So that is where “non-bank” comes from but I pick up the point that it is funny to be talking about what is not a bank, rather than these financial institutions, as we generally understand them.
This bill is actually part of a suite of bills: there is the Financial Advisers Bill and the Financial Service Providers (Registration and Dispute Resolution) Bill, which are on the Order Paper and before select committees at the moment. I make the point that many non-bank financial institutions have actually survived, and their depositors’ moneys are quite safe. They obviously followed quite conservative strategies—perhaps there is a bit of luck involved. But unfortunately, and very sadly, some funds have been lost. We are very sympathetic to that, but we also have to distinguish between organisations where illegal or misleading behaviour has been alleged—and I repeat the word “alleged”—and the Serious Fraud Office is currently investigating some of those larger institutions, and institutions that have come to difficulty because of the credit crunch, funding crises, and the inability to raise further funds, so they have had a market difficulty as opposed to alleged dodgy behaviour, which the Serious Fraud Office is looking into at the moment both in New Zealand and in Australia, I understand. I think everyone in this Parliament is very sympathetic and wishes all speed to the Serious Fraud Office and the appropriate agencies to find any dodgy behaviour and arrest and bring those involved to account. Many families and individuals are suffering immensely because of some very, very dodgy behaviour.
But there is another point that seems to be lost on many commentators. At the same time as these three bills are going through—the Reserve Bank one here and the other two I just spoke about—there is, of course, the monetary policy inquiry. It seems to have been missed by a lot of commentators that actually they are touching on many of the same issues. In this bill here we talk about capital adequacy, prudential ratios—basically everything that the non-banks influence. They have a part to play, of course, in the financial system—as the monetary policy inquiry is looking at across the sector, I guess at a much more macro level. As we go through the Committee stage I will be talking particularly about some of the technical pieces in there, and I will seek advice on the technical stuff from Mr Doug Woolerton as we go through further.
But there is a concern—it comes from here and I raised this concern at select committee—that there is a balance. It is a fine balance, and I am constantly concerned about any politicisation or further influence of monetary policy via some of the methods and tools that are in this bill here, and the confusion of prudential regulation with monetary policy. They are totally different. The moment there is greyness between those areas we are in trouble. If members think our interest rates in New Zealand are high now, I tell them that any removal of that certainty—those Chinese walls—will actually add further to the New Zealand risk premium that we currently suffer under, and which has actually got worse, particularly over the last 9 years.
It is all about risk. This legislation sets up a framework for non-bank financial institutions—let us just call them things that are not banks; it is a bit easier—that is about risk. It is about the risk of their funding stream, and the Reserve Bank looking to see whether they are actually too exposed—whether they have lent for 10 years and are borrowing every 3 months. The Reserve Bank will look at that and say that if the tap gets turned off for 3 months the financial institution will be in deep trouble. That is actually the exact problem many institutions are facing right now. It is compounded by the credit crunch that started in the United States and arrived in New Zealand about the middle of last year. But it is accentuated here because our interest rates start so much higher, and there already starts to be a risk premium in New Zealand. Sadly, New Zealand is at the back of the queue when we are lining up, whoever it is from New Zealand, to try to find funding in times of crisis. This is the exact problem that many of those pretty sound institutions are having right now: they have lent for 10 years and borrowed for shorter terms.
We can think, way back, to the PSIS problem—in the early 1970s, I think it was—and to the problem JBL had way back then too. It is a common theme: when any of these institutions run into difficulty, it is simply because their funding does not match their obligations on the other side; their liabilities are short term, and their assets are long term. They have borrowed short and lent long and, as interest rates go higher, they have to pay more, they have negative cash-flow, or sometimes that cash flow is turned right off. That is the big problem many of those financial institutions are facing right now.
Another point that I raised throughout the period when the Reserve Bank of New Zealand Amendment Bill (No 3) was before the Finance and Expenditure Committee, was that this issue is about risk, and there has been a merging of all things financial, not only within New Zealand but also around the world. There has to be a level playing field, because if a bank and a non-bank financial institution have the same funding profile, and the same asset and risk profile, the requirements upon them should be the same. Otherwise, the Reserve Bank, or—as a clause in this bill allows—even the Minister of Finance, can start to skew or favour one particular type of organisation over the other, and we do not want to go down that track.
It is really a balance between our need and our want as parliamentarians to provide for the public good a framework to ensure that those who do not fully understand what they may be getting themselves into when they invest in something after seeing some flash advertising programme on TV with celebrity presenters etc., and without really understanding the risks of doing so—there is a tension between that and, at the other end of the spectrum, the principle of caveat emptor, or let the buyer beware. I think we are all pretty much in the middle space there. There are many companies that have—deceptive is not quite the right word, perhaps misleading is the correct word—implied guarantees of people’s funds as they were invested, and in fact those guarantees turned out not to be there once the surface was scratched. This bill starts to address that, and brings, as it states in the introduction, some accountability and transparency back into all things non-bank. I think it is a sign of the maturity of our financial sector that most organisations have come round and are now quite supportive of this bill. The current crisis and the issues people are having regarding non-bank financial institutions are making the bill more pertinent.
We also need to note that there are about only 70 or 80 non-bank financial institutions in total—and that number is declining—and I think they manage about 10 or 15 percent of all funds under management in New Zealand. That is my point: yes, there have been some terrible losses, but our financial system is actually quite sound. Unfortunately, in the case of many of these institutions, the perception of the risk to investors was not understood, was not particularly apparent, or perhaps was somewhere down in the small print. That is not acceptable, I do not think, to anyone in this House or even to the common person out in the street.
As we go through the other parts, I will also speak about this thing called Basel II, which defines how all these capital adequacy ratios are set etc. But it is fair to say that actually there are existing frameworks out there, which banks have used for a long time. Banks also get into trouble, and then they do come right, but there comes a point when a bank gets so big that, of course, the regulator cannot afford to let that institution fail. We have seen that to a massive extent in the case of Northern Rock in the UK, Fannie Mae and Freddie Mac in the United States, and, in fact, in the case of some Australasian banks too, unfortunately, where some larger banks have absorbed some of the minor institutions into their own balance sheet. Although National is voting for the bill, I say that we just have to be careful that an implied underwriting or guarantee by the Reserve Bank or the taxpayer of these non-bank financial institutions is not given. It is a very slippery slope that we go down, once we get into that space. The tensions of the current financial crisis make that quite tempting, and we just have to resist that. Thank you, Mr Assistant Speaker. I look forward to speaking through the Committee stage.