Flexibility Being Introduced To Retail Scheme

18 November 2009

MEDIA STATEMENT

Flexibility Being Introduced To Retail Deposit Guarantee Scheme

The Treasury is changing the terms and conditions of the Retail Deposit Guarantee Scheme to make it more flexible for deposit taking institutions, while continuing to protect current depositors.

“Existing investments by eligible depositors are not affected by these changes; they continue to benefit from the current Crown guarantee,” Brian McCulloch, Treasury’s Director of Financial Operations said.

“The Crown stands fully behind its guarantee commitments and the safety net remains in place,” Dr McCulloch said.

The Treasury has contacted all institutions participating in the Retail Deposit Guarantee Scheme to inform them of the changes and will this week send out replacement Deeds of Guarantee that include the revised terms and conditions. The revised deeds clarify various arrangements that may arise if a deposit taking institution defaults. In particular, the revised deeds being sent to all institutions will:
• allow participating institutions to offer both guaranteed and non-guaranteed debt securities;
• allow a 14 day “stand down” between a potential default and invoking the Crown guarantee, which could provide time for the institution to resolve issues and avoid receivership;
• allow the Crown to set a timeframe for claims to be made after a default.

“This change provides greater flexibility for deposit taking entities and improves consistency between the current scheme which ends on 12 October 2010 and the extension scheme that will operate from 12 October 2010 until 31 December 2011,” Dr McCulloch said.

Institutions participating in the Retail Deposit Guarantee Scheme have until 4 December 2009 to accept the revised deeds, which will then come into effect on 1 January 2010. If an institution declines to sign the revised deed then new deposits or investments after 1 January 2010 will not be guaranteed but existing eligible deposits made prior to 1 January 2010 will continue to benefit from the existing Crown guarantee until expiry of the current Retail Deposit Guarantee Scheme on 12 October 2010, unless those deposits become due and payable earlier.

“Institutions will decide for a number of reasons whether or not to participate in the Retail Deposit Guarantee Scheme under the revised provisions for a number of reasons. As always, we recommend that depositors and investors ensure that they are well advised about their investments and make sure they understand their investment choices before they make any commitments,” Dr McCulloch said.

QUESTIONS AND ANSWERS

Will my deposits or investments made before 1 January 2010 still be guaranteed?

Yes. For deposits made prior to 1 January 2010, eligible depositors will continue to benefit from the existing Crown guarantee until the expiry of the current Retail Deposit Guarantee Scheme on 12 October 2010 unless those deposits become due and payable earlier, regardless of whether or not the institution continues to participate in the scheme.

Will my deposits or investments made after 1 January 2010 still be guaranteed?

Yes, so long as your financial institution has signed the revised deed. In those instances, eligible depositors will continue to benefit from the Crown guarantee for guaranteed new deposits or investments made on or after 1 January 2010 and existing deposits or investments that are rolled over on or after that date, until the expiry of the current Retail Deposit Guarantee Scheme on 12 October 2010 unless those deposits become due and payable earlier.

Institutions could offer both guaranteed and non-guaranteed investments. How will I know if an investment or deposit is guaranteed?

Institutions are required to inform investors whether or not the investment that they are making is guaranteed or non-guaranteed. This information must be included in the institution’s investment statement or prospectus.

Who is covered by the Crown guarantee, and when?

The following table sets out the circumstances under which an eligible depositor will benefit from the Crown guarantee:
Date that money deposited / invested
12 Oct 2008 - 31 Dec 2009 1 Jan 2010 - 12 Oct 2010
Institution is not participating in Deposit Guarantee Scheme Crown guarantee does not apply Crown guarantee does not apply
Institution participating in the Deposit Guarantee Scheme that does sign a replacement Deed of Guarantee Eligible depositors benefit from
the Crown guarantee for deposits made on or before 31 December 2009 Eligible depositors benefit from
the Crown guarantee for new or rolled over deposits that are issued as Crown guaranteed and that are made or renewed after 31 December 2009 and before 12 October 2010.
Institution participating in the Deposit Guarantee Scheme but does not sign a replacement Deed of Guarantee Eligible depositors benefit from
the Crown guarantee for deposits made on or before 31 December 2009. Crown guarantee does not apply to new deposits or matured deposits that roll over after 31 December 2009. Deposits made on or before 31 December 2009 are still covered by the earlier guarantee.

Why have you put the 14 day stand-down period in the deeds?

This is to allow time for an institution that is facing temporary issues to resolve those issues before reaching a point where it defaults. Allowing a brief period to resolve temporary issues protects the interests of depositors, the institution and the Crown.

Why have you set timeframes for making claims after a default?

Setting a timeframe will improve operation of the scheme, including facilitating prompt payments to creditors by the receivers of any firm that has defaulted.

What other changes are included in the revised deeds? Can I see the revised deeds?

The revised deeds and questions and answers relating to the revised deeds may be viewed at www.treasury.govt.nz/economy/guarantee/retail

Why are you doing this now?

The Crown has been reviewing the terms of the Guarantee Deed in light of the experience of the Deposit Guarantee Scheme’s first year of operation. These alterations help protect the interests of depositors, institutions and the Crown while making the operation of the scheme more flexible.

How will I know if my institution is participating in the Deposit Guarantee Scheme?

A list of all participating institutions is published, and kept up to date, on www.treasury.govt.nz/economy/guarantee/retail

How does this fit with the extended scheme, after 12 October 2010?

This is a separate process from the previously announced extension of the scheme from 12 October 2010 to 31 December 2011 but institutions that do not sign up to the revised deed will not be eligible to join the extension scheme.

ends

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