RBNZ and NZ Treasury announced deposit guarantee

RBNZ and NZ Treasury announced deposit guarantee scheme

In a joint statement, the RBNZ and New Zealand Treasury on the weekend announced a deposit guarantee scheme similar to that announced by the Australian government (discussed in detail in an earlier email). The New Zealand authorities have yet to guarantee wholesale term funding by financial institutions like their Australian counterparts, however.

New Zealand introduced an opt-in deposit guarantee scheme. Eligible institutions will be invited to enter the scheme which covers deposits for New Zealand registered banks and eligible non-bank deposit-takers, including banking societies, credit unions and finance companies. In the event of the liquidation of a guaranteed financial institution, the Crown will make payment if the institution’s assets are shown to be insufficient to meet the liabilities covered by the guarantee. Kiwibank and ASB were the first to sign up to the newly announced scheme.

The guarantee will be offered for a term of two years (shorter than the Australian scheme, which offers a three year term) and will be free for those financial institutions with retail deposits under NZ$5 billion. The Government will charge a fee for any guarantee offered on amounts of more than NZ$5 billion - this fee will be 10bp per year for covered liabilities in excess of NZ$5 billion.

Other details indicate that:

• Incorporated registered bank deposits from both residents and non-residents will be covered.

• Only deposits of Kiwi citizens and tax residents will be covered for non-bank deposit takers and for the unincorporated branches of overseas entities.

• Deposit liabilities will be covered regardless of the currency in which they are denominated.

Essentially, the scheme, like other deposit guarantee schemes emerging across the globe, aims to maintain confidence in New Zealand’s banking system, confidence that has been rocked by the significant turmoil in global financial markets. It should give further assurance to New Zealanders that their banking system is strong and that their deposits are safe.

ENDS

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