Manawatu Standard

Savers will have more protection

- Tina Morrison

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.’’

Newspapers in English

Newspapers from New Zealand