KEY POINTS:
The New Zealand taxpayer has a right to be nervous about the deposit guarantee the Government may extend to money raised by our trading banks from foreign sources. It is one thing to guarantee the deposits of ordinary domestic savers; we are assured our largely Australian-owned banks are in sound condition, and now that the guarantee has made panic withdrawals unlikely, there is no reason to think the taxpayers will face a claim.
But when the guarantee is extended to the much greater borrowings the banks raise from wholesale sources abroad, we cannot have the same confidence. Yet local banks must renew loans as they fall due if they are to have money to advance to businesses that need it to pay wages and bills. With the global financial system nervous and near frozen, it may be hard to raise the money when it is needed, particularly if other countries are underwriting their banks' borrowings.
This is just the first emergency arrangement worldwide that seems likely to lead to a major reform of financial oversight and regulation. It is the most far-reaching problem for all national economies today and it is a subject that should not become a political football, even in the middle of an election campaign (many would say especially in the middle of an election). If the country is about to change its Government it will happen as, or shortly before, the wholesale banking guarantee will be needed. It is vital, therefore, that the detail of the commitment has the agreement of both parties vying to lead the country from next month.
Many will have applauded the National Party leader's offer to work with the Finance Minister in developing a response to the crisis. Not as many will have appreciated Michael Cullen's refusal to do more than keep John Key and his finance spokesman, Bill English, briefed on progress.
But Dr Cullen's position has to be recognised. To bring National into the decision-making would be almost an admission that it will be the next Government and neither major party in our system could be expected to make that concession before an election.
It is good to see that behind their adversarial behaviour there is a degree of co-operation at times like this. National was, in fact, being briefed on Dr Cullen's discussions with the Reserve Bank before he let it be known on Sunday that an extension of the guarantee is under consideration.
Indeed, Mr Key's public offer to work together was probably made to avoid a repeat of events the previous Sunday when the retail deposit guarantee was announced by the Prime Minister at Labour's campaign launch. National had been briefed on discussions leading to that decision, too, but had no warning a decision would be announced that day.
National insiders claimed the bank governor, Alan Bollard, had wanted to brief the Opposition on the original decision in advance, but Mr Key did not make an issue of the Government's refusal to do so. He shows a refreshing lack of interest in the petty side of politics and does not make too much of the advantage he could claim for his intimate knowledge of the finance industry.
Making his offer on Sunday, he said Dr Cullen had been advised of it and, looking ahead, he noted that while the election is less than three weeks away, it could be six weeks or more before a government is formed. It will be after the election that the financial crisis seriously challenges the main parties to work together. If neither is an outright winner on November 8, they must not leave the banks in limbo. Negotiations with potential minor partners should not prevent National and Labour agreeing in what must be done. By then it will be urgent.
