Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Assistant Treasurer and Revenue) Share this | Hansard source

I rise to speak on the Financial Sector Legislation Amendment (Trans-Tasman Banking Supervision) Bill 2006. The Australian and New Zealand banking markets are amongst the most highly integrated in the world. Australian banks have a combined market share of more than 85 per cent of the New Zealand banking market. New Zealand assets comprise around 15 per cent equity in Australian banks. The dominance of the trans-Tasman financial system is very much one way. Foreign ownership remains an issue in New Zealand. As I mentioned, the New Zealand banking industry is more than 85 per cent owned by the Australian big four, but New Zealand banking is 98 per cent foreign owned. Therefore, if a bank is not owned by Australian interests it is most likely to be owned by other foreign interests.

Given the high level of commercial integration, there is benefit in moving towards seamless regulation of banks to reduce compliance costs and promote efficiencies. It is also important that the banking supervisors are able to cooperate in promoting financial system stability in each country, given the interdependence of both financial systems. Early in 2004 a working party of Australian and New Zealand officials began discussions to look at options for integrating the banking and finance regulatory regimes in both countries. The New Zealand government published in early 2005 a report entitled Review of the regulation and performance of New Zealand’s major financial institutions.

Also in 2005 the Trans-Tasman Council on Banking Supervision was established by the Treasurer and the New Zealand Minister of Finance to promote a joint approach to trans-Tasman banking supervision that delivers a seamless regulatory environment for banking services as the first step towards a single economic market in banking. This bill implements legislative changes recommended by the council to ensure that the Australian Prudential Regulation Authority and the Reserve Bank of New Zealand can support one another.

The issue of trans-Tasman financial supervision has received little attention in Australia. However, the issue is quite important in New Zealand for obvious reasons. The big four Australian banks—ANZ, the Commonwealth, the National Australia Bank and Westpac—control 89 per cent of the assets of the New Zealand banking system. By contrast, an inspection of APRA’s statistics reveals no Australian presence of any identifiable New Zealand bank. At 89 per cent of New Zealand’s banking system, the big four Australian banks control more of the New Zealand market than of the Australian market, where they account for around two-thirds of the Australian banking industry. That is if it measured by share of assets. Hence, the regulation of the New Zealand banking system in practice means little more than regulating the subsidiaries and branches of the big four Australian banks.

The legislative changes aim to allow banks with operations in Australia and New Zealand greater flexibility with respect to the trans-Tasman jurisdictional location of their systems and functions than can be afforded under the current regulatory regimes of the two countries. This will have compliance costs and efficiency benefits for banks, which would flow on to consumers—at least, that is our hope. Also, promoting economies of both Australia and New Zealand.

This bill will amend the Australian Prudential Regulation Authority Act 1998, the Banking Act 1959 and the Financial Sector (Transfers of Business) Act 1999. The bill requires APRA to support the Reserve Bank of New Zealand in performing its statutory responsibilities in New Zealand relating to prudential regulation and financial systems stability. It also requires APRA to consider the implications of its actions on financial systems stability in New Zealand. This is achieved by giving APRA a new objective which is required to be balanced with but not override APRA’s existing domestic objectives. An administrator or statutory manager is also required to consider the implications of a proposed action on financial systems stability in New Zealand. APRA is obliged to consult the Reserve Bank of New Zealand before it or any administrator takes an action that may have a detrimental effect on financial systems stability in New Zealand.

As a result of these obligations, the risk that APRA could be required to interfere with the provision of outsourced services from an APRA regulated entity to a New Zealand bank is ameliorated. Therefore, this bill should result in reduced impediments to banks in choosing the location of their systems and functions within the trans-Tasman market. In addition, this bill will clarify that one of APRA’s objectives is to promote financial systems stability in Australia and that APRA can second staff from the Reserve Bank of New Zealand.

The bill should not have any financial impact for the Commonwealth, because APRA is self-funded through financial sector levies and will not require additional resources to implement these amendments. Reciprocal legislation is currently being progressed through the New Zealand parliament. Delaying the legislation will be of detriment to the good working relationship between our two great nations. The bill implements announced agreements between Australia and New Zealand ministers made on 22 February 2006. Labor supports the bill, and I now move the second reading amendment that has been circulated in my name:

That all words after “That” be omitted with a view to substituting the following words: “whilst not declining to give the bill a second reading, the House:

(1)

notes that in both Australia and New Zealand there has been a significant increase in the number of low documentation loans approved in recent years and the role of mortgage brokers in securing these loans; and

(2)

calls for uniform regulation of mortgage brokers”.

Labor is disappointed that negotiations towards uniform legislation at state and territory levels appear to have broken down. There is clearly a need for stronger regulation in this area to protect consumers. I believe my colleague the member for Canberra will raise the significance of these issues when I complete my contribution, but I want to say that obviously, as interest rates rise—contrary to some very firm commitments we got from the government during the last election campaign—families are struggling, particularly in mortgage belts. It is an unfortunate truth that the system has delivered low-doc loans which are potentially beyond the sustainability of those young families. As interest rates rise it is not a surprise to any of us that the chickens will be coming home to roost for many of those families. I think it is most appropriate that that matter be debated in the House this evening as we consider this banking bill.

I have spoken to the member for Canberra personally on a number of occasions about this issue. I know she is passionate about it. She represents one of the great mortgage belts of this country—sometimes known as ‘nappy valley’, if I remember correctly—and I am sure she will have a substantial contribution to make on that issue. Labor will be revisiting this issue, and policy announcements will be made in the lead-up to the 2007 election. We see this as a very significant issue, as we see credit issues are, generally speaking, for small business.

I have been very disappointed that the Hunter region seems to have become the capital of defaults and I refer here to the failure of large companies to make good their payments to small business and contractors. We have had some very high-profile cases of late, the most interesting of them being that relating to a group of companies known as the Bay group of companies, Bay Building et cetera, which left in its wake after its failure a whole string of small, unsecured creditors who had done their work in good faith. The more recent one is a group of companies that come under the banner of Hightrade which has not collapsed, fortunately, but is not paying its small business contractors. I make a commitment in this place that I will pursue Hightrade on these matters. I do understand that they are a sustainable company and there are no excuses for not paying their unsecured creditors. If they do not lift their game in that regard, they can expect to see me pursuing them in this place, as I have often been keen to do. With that additional point, I just repeat that Labor will support the government’s bill. We think it is a good step forward, but I recommend to the House the second reading amendment that I have moved.

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