12. JOHN BOSCAWEN (ACT) Link to this
to the Minister of Finance
Does he believe it was “necessary or expedient in the public interest” to grant a guarantee to FAI Finance Ltd as required by the Public Finance Act; if so, why?
Hon BILL ENGLISH (Minister of Finance) Link to this
One of the overarching principles of the retail deposit guarantee scheme is that the grant of a Crown guarantee to an entity must be necessary or expedient in the public interest, where the public interest is either in the maintenance of public confidence in the financial system, or in maintaining the confidence of general public depositors in New Zealand’s financial institutions. The effect of this requirement has been that in the early stages of the guarantee those who are delegated to grant entry have been focused principally on maintaining public confidence in the financial system, rather than only on credit risk.
Does he feel it adds insult to injury for investors who have lost money in the Hanover group of companies to now, as taxpayers, have to guarantee losses in FAI Finance Ltd, which is a member of the same Hanover group?
I can understand people having concerns about any number of the activities that have gone on in the financial markets but I stress that the point of the guarantee, when it was brought into place, was to maintain public confidence in the whole system. It has put those who are delegated to provide the guarantee in the situation of having to weigh up general public confidence on the one hand with the particular aspects of any individual applicant for the guarantee.
Hon Jim AndertonCan the Minister advise the House what it was specifically about FAI Finance and its parent company Hanover Finance that convinced him that a guarantee for that company complied with Treasury policy guidelines for Crown guarantees of “the maintenance of public confidence in New Zealand’s financial system; and . . . maintaining the confidence of general public depositors in New Zealand financial institutions.”?
Any company that has the guarantee has it because it complied with the requirements. I think Parliament needs to keep in mind that the fundamental intent of the guarantee was to prevent a series of collapses of financial institutions for the reason that depositors felt their money was not safe, and that has been a significant factor in determining who the guarantee applies to.