Key changes campaign landscape with offer of bi-partisan approach
Fran O’Sullivan in several recent articles, including her latest, has commented on the need to avoid politicisation of the issues related to the global financial crisis as they affect NZ. Bernard Hickey has commented several times on the flawed bank deposit guarantee scheme and the need to cover interbank lending. Hickey had a substantive post at Stuff the other day on this. Hickey has commented elsewhere such as the ratesblog. O’Sullivan in particular has been calling for leadership from the politicians.
Various bloggers including Adam, Visible hand in economics, The Hive, Kiwiblog, No Minister, Roarprawn, Not PC, Keeping Stock, Homepaddock, Tumeke and others Adam may have omitted to name, for which he apologises have commented on this issue from a variety of perspectives, reflecting authors’ viewpoints, experience and background.
Today John Key made a proposal for a bi-partisan approach to this crisis.
At this time his proposal was in respect of the deposit guarantee scheme, but Adam would suggest and envisage that having offered in this regard National would be open to widening co-operation.
Undoubtedly there is an element of politics underlying Key’s offer, but Adam believes that Mr Key’s offer is genuine.
Adam considers that in making this move Mr Key is exhibiting leadership and a genuine desire to promote the country’s interests and not just his own.
Rather than just comment on extracts, Adam has posted the full text of John Key’s statement below. It is important to note that Mr key was not saying that there is an imminent crisis, but that he considers a bi -partisan approach is both desirable and appropriate.
Statement on New Zealand Banking System
Notes to media conference (National Party Caucus Room)Ladies and gentlemen, I have called this media briefing to make a statement regarding the developing situation affecting our banking and finance markets.
As you know, my Finance spokesman Bill English and I are now receiving briefings from the Reserve Bank and the Treasury. I have also had a number of conversations with senior people in New Zealand banks andothers in the finance sector.
I have been careful to ensure there is nothing in what I intend to say to you today that breaches the confidentiality of their briefings.
I am not making this statement today because I see an imminent crisis in the New Zealand banking sector.
On the contrary, I remain convinced that, with the appropriate policy responses, our banking system can navigate the challenges that lie ahead in reasonable shape.
However, it is my view that the sooner we are able to resolve the current issues around the deposit guarantee scheme, the sooner we will give certainty to those involved in the banking sector, those who depend on our banks, and others, such as the Australian authorities who, because of the structure of our market, have a close interest in these developments.
At a time when confidence will play an important role in our economy, more certainty sooner, should be our goal.
I am, therefore, making this statement because I want to confirm to Helen Clark and her colleagues that the National Party is prepared to work with them to ensure that decisions can be made during this election period, when it would be too easy for politics to get in the way.
I also want to convey the importance of our government taking a proactive approach to settling the complex matters that are yet to be resolved.
Mr English has been in contact with Dr Cullen today to advise him that I would be making this statement.
In two weeks and six days, New Zealanders will cast their votes in a general election.
It is possible that the completion of the election formalities and the process of forming a new government could take us six weeks or even further into the future from now.
Meanwhile, it is becoming clear that some further decisions will be required regarding the deposit guarantee scheme, and it is important for the New Zealand economy that those decisions be taken as soon as practically possible and that they be politically durable.
There is a Cabinet meeting tomorrow at which I hope the Government will be discussing this matter. We also understand that some announcements regarding the detail of the Australian bank deposit scheme will be made early this week, and that will provide a clearer backdrop for decisions to be made in New Zealand.
The Government last week announced there would be a bank deposit guarantee scheme. We supported that initiative.
That scheme guarantees the deposits of ordinary ‘mum and dad’ investors who have some money put aside in a bank or building society, for example, and it also guarantees corporate deposits. Our banks rely on these sorts of deposits in order to lend to New Zealand businesses and to New Zealand households, and by doing so to keep our economy moving.
However, retail deposits are only part of the story.
Our banks also critically rely on wholesale funding from other banks and financial institutions. Some of this funding comes from within New Zealand, some from parent banks in Australia, and some from foreign, non-Australian banks and financial institutions.
The Government’s initial announcement last week stated that these wholesale deposits – effectively, banks lending to other banks – would not be guaranteed by the Government.
Australian Prime Minister Kevin Rudd has outlined a scheme for that country which does guarantee wholesale deposits, and some deposit guarantee schemes being implemented in a number of other countries also do the same.
Our banks are fundamentally strong, but in the current international environment, without a government guarantee it will be very difficult for them to raise funds in offshore finance markets, where they will have to compete against banks with cast-iron government backing.
In this time of uncertainty, wholesale funds will flow to safe havens.
This applies to wholesale funds within New Zealand as well. There is a risk that local financial institutions will decide to shift some wholesale deposits out of New Zealand banks and place them in Australian banks where their deposits will be guaranteed.
All this means that the banks would, over time, have less money to lend to New Zealand businesses and New Zealand households, and that lending would become more expensive.
We understand from the Reserve Bank’s public statements that it considers the New Zealand banks to have some weeks or months of funding in the pipeline.
However, the Government will, before too long, need to give banks, and other financial institutions, a clear indication of what is happening, to allow them to plan for any managed easing-off in lending.
The important issue here is that the New Zealand deposit guarantee scheme, as announced last Sunday, is out of line with the Australian scheme announced by Kevin Rudd.
However, there are important considerations to take into account when deciding whether or not to expand the New Zealand scheme to make it broadly in line with Australia.
Already the effect of the deposit guarantee scheme announced by the New Zealand Government involves accepting contingent liabilities in the region of $150 billion. Expanding this guarantee scheme to include wholesale deposits would involve taking on a much greater contingent liability.
Moreover, this issue is complicated by the fact that our big four trading banks are subsidiaries of Australian banks.
If the New Zealand Government were to guarantee wholesale as well as retail deposits this would further transfer risk from Australian shareholders – who actually own the big four banks – to New Zealand taxpayers, who are giving them a guarantee.
For its part, the Australian Government will no doubt be concerned about the effect of its own guarantees, and other possible changes, on the banking system in New Zealand, and on the balance of risk being held between the two countries.
That seems to me to require some fairly direct understandings to be reached with the Australian Government and with the banking regulators in that country. I believe it is important that in any such discussion with the Australian Government both major parties must be supportive of the New Zealand position, given the imminent election here.
However, we need to be clear that the overall priority for New Zealand is the continued health of the New Zealand banking system.
I therefore today repeat my offer to Helen Clark that the National Party will support any sensible measures to protect New Zealand’s banking and financial system against the impact of the current international credit problems.
To the extent that these measures require further Crown guarantees, we are prepared to support them in a bi-partisan way.
To the extent that taking such measures would require agreements or actions to ensure that the banks bear their appropriate share of the burden moving forward, I offer our constructive engagement, with the intention of bi-partisan support.
If, for the reasons I have spelt out today, the Government accepts the need to find some form of agreement with the Australian Government about the framework for moving forward, then my colleagues and I will actively support that process.
I will ensure the personal involvement of myself or my colleagues in any discussions the Government wishes to have with the Australian Government in order to provide reassurance about the durability of any understandings that are reached.
To Adam that seems a measured and appropriate statement.
Adam wonders whether Espiner G. had some inkling of this announcement when he questioned Dr Cullen on TVNZ’s Agenda this morning. In that interview Cullen committed to briefing National, but to Adam’s mind appeared to shy away from any bi-partisan approach.
Adam was surprised to find no stories not even an NZPA one on the NZ Herald web-site. The Stuff web-site did have an NZPA story.
Although Cullen was quoted as saying he welcomed John Key’s approach in the NZPA story noted above the same article quotes Cullen on Agenda as follows:-
Dr Cullen said earlier today he was working on a wholesale guarantee scheme and indicated it would be brought in before Christmas.
“Clearly we can’t leave the New Zealand banking sector exposed to a position where there is a risk that money will all go to other financial systems because they have such guarantees,” he said on TV One’s Agenda programme a few hours before Mr Key held his press conference.
In that quote Cullen seems to be taking the view that he will still be Finance Minister.
Adam thought the TVNZ One News coverage was rather light and did not seem to treat the matter with the importance it deserved.
Whilst Cullen might appear to be taking a reasonable line, Clark at around the time Key was speaking was in full bore attack mode as illustrated by this item at the TVNZ site:-
The economy is now centre stage in this campaign as Clark preached to the party faithful, Key was on the front-foot calling for a short term bi-partisan approach. But Labour had a one track mind on the long term.
“A change to a leader with the learner wheels on no longer seems as it might have even a few weeks ago. At times like these premium value is attached to to those who have experience and judgement,” says Clark.
This issue will develop further in the next few days, but at the present Adam suspects that Clark may well choose to back herself and spurn the bi-partisan offer.
It is at times like this that the absence of in depth MSM analysis is so sorely exposed.
No doubt we will have to wait until Sounds Like Helen tomorrow morning and the morning editions of the papers.
At this time though, Adam is inclined to think that Key has moved onto the front foot and seized some of the initiative in the campaign. Indeed, he may have changed the campaign landscape with this move, and thus the nature of the election battle.
