The original scheme was introduced without legislation or consultation -- not a good omen for good law, and highlighting the undesirable flexibility of our informal constitution -- but the extension is happening via legislation. Great, anyone can make submissions to the Select Committee, that is what happens when legislation is passed, no?
No, we have a wonderful thing called Urgency, where the government can pass legislation without bothering to consult with the people impacted and the people MP purport to represent.
But wait, it gets even worse! Not a single MP, including the 'free market' ACT Party's 5 MPs voted against the legislation!
From http://www.stuff.co.nz/business/industries/2847900/Parliament-backs-extension-of-deposit-guarantee
Parliament backs extension of deposit guarantee
Parliament has unanimously backed the extension of a modified retail deposit guarantee scheme despite some sniping from opposition MPs.
The scheme, introduced last year at the height of the meltdown of the international finance markets, was put in place to ensure confidence in local banks and to stop a rush of money into overseas institutions which had guarantees in place.
The law passed under urgency today means the retail deposit guarantee scheme will be extended in revised form until the end of 2011, at which point the Government hopes it can be ended without causing harm.
Parliament suspended its normal rules to allow the bill to go through all stages without referral to a select committee.
A number of MPs complained that this would lead to bad law, but National said the details in the bill were commercially sensitive and an extended process could cause uncertainty on the markets.
The Government had hoped to complete debate on the bill last night, but Labour did not allow an easy ride and debate resumed this morning.
Despite the delays, the bill passed with the support of all parties in Parliament this morning.
The current scheme ends on October 12 next year and the extended scheme will change from that date.
The scheme will become voluntary and higher fees will be charged for those with lower credit ratings.
Those with a lower rating than BB will not qualify.
While all parties backed the scheme, that did not stop some criticism.
Labour MPs argued that all banks should be forced to take part in the scheme so their fees would help cover the risk posed by smaller finance companies.
They also argued that banks had benefited from the taxpayer underwriting their risk without passing on sufficient interest rate cuts.
The Greens were upset that the Government did not insist on banks retaining jobs in New Zealand while they enjoyed its generosity.
Maori Party MPs, like others in minor parties, were unhappy because they did not see the bill until the last minute and details of the scheme were still to be released.
All parties agreed the law was necessary to ensure confidence in the financial sector until the point that the retail deposit scheme could be wound up
Over 80 institutions are covered by the scheme, with many of the smaller finance companies benefiting from it at little or no cost.
In total, more than $120 billion of deposits from around 3.5 million depositors are covered by the guarantee.
The changes to the scheme will follow a new regulatory regime for non-banking institutions being overseen by the Reserve Bank, which requires all finance companies with more than $20 million in assets to get credit ratings.
The new regulatory regime was sparked by the collapse of a number of finance companies and some are still struggling as they cope with the credit crunch in the wake of the international financial crisis.
Finance Minister Bill English warned finance companies that he was giving them time to sort their businesses out.
The Government had paid out $68 million to cover guaranteed deposits, and had received $64 million in fees from financial institutions in its first eight months of operation.
NZPA
1 comments:
From ACT:
Hi David,
I have spoken with Sir Roger about the reasons why ACT ultimately supported the extension of the Deposit Guarantee Scheme.
The MPs were concerned that a complete withdrawal of the scheme would create a financial shock, and so an exit strategy that reduced the scope of the scheme over time would be preferable. Sir Roger and I actually wrote a paper in which we advocated that the scheme should be reduced over time as a proportion of all deposits - i.e., that it should go from covering 100% of the deposit, to 75%, to 50%, etc. This would have provided a clean mechanism to reduce shock but also deliver a clear exit strategy.
In the end, the Government did not go with this simple approach. ACT supported the approach they adopted for three reasons:
1) There is an exit strategy now. Fees will reflect the risk profile of the companies, so there will be less of a moral hazard problem. This will decrease the number and size of the deposits covered.
2) The maximum size of the deposits reduces sharply, meaning that the real scope of the guarantee is smaller. These two first point suggest when it expires that there will not be a financial shock.
3) The scheme is now consistent with the Australian scheme, whereas the previous inconsistencies had the potential to lead to financial and tax arbitrage.
ACT will be looking at this issue in the future, and will be very skeptical about any future plans to extend it further, should they develop.
I hope this has helped you understand our position.
Regards,
Stephen Whittington
Research Assistant to Hon Sir Roger Douglas
Ph: (04) 817 8245
Mob: 021 242 8407
Email: Stephen.Whittington@Parliament.govt.nz
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