Savers will have more protection
The Government is bringing in a scheme to protect deposits of up to $100,000 in banks and financial institutions should they fail.
The deposit protection limit is double the initial proposal of up to $50,000 following consultation after the plan was mooted two years ago. The scheme would fully protect 93 per cent of depositors, Finance Minister Grant Robertson said.
The measures, finalised by Cabinet, are part of a review of the Reserve Bank Act and will help protect New Zealand’s financial system and wider economy from damage caused by excessive risk taking by the deposit taking sector and any resulting failures of institutions, Robertson said.
‘‘While New Zealand’s financial system is sound and well positioned to withstand the stress posed by Covid-19, these reforms ensure the Reserve Bank is better equipped to protect and promote financial stability in the future.
‘‘Taken together, the recommendations will considerably strengthen New Zealand’s financial system safety net and contribute to a robust framework of protections for depositors. It also brings our protections into line with those in place overseas.’’
Many developed countries have bank deposit insurance schemes to ensure people don’t lose their savings if a bank or financial institution collapses.
The new measures mean individuals will have up to $100,000 of their deposits in any eligible institution guaranteed in the event of the failure of an institution.
Licensed deposit-taking institutions include banks, credit unions, building societies and finance companies.
Robertson didn’t detail how the scheme will be funded. As part of earlier consultation, Treasury noted such schemes were normally funded by levies on banks.
The Bankers’ Association supported a risk-based approach to setting levies, where lower risk entities such as banks would pay lower levies because they were less likely to call on the scheme, said chief executive Roger Beaumont.
Banks were already facing higher costs as part of Reserve Bank moves to phase in higher minimum capital requirements to help them withstand financial shocks, he said.
Beaumont said it was important to work through how the new scheme would fit in with the Reserve Bank’s ‘‘open bank resolution policy’’ which enables a draw on deposits to help keep a bank afloat in the case of potential failure.
Reserve Bank Governor Adrian Orr said reaching this stage was a significant milestone in strengthening the regulatory framework for all institutions that take deposits.
‘‘This new act will broaden and clarify the scope of our role, which has evolved significantly since the Reserve Bank began prudentially regulating banks more than 30 years ago.’’