Protections planned for bank deposits

WELLINGTON: Finance Minister Grant Robertson has proposed giving himself new powers over bank lending.

Yesterday, Mr Robertson revealed the details of the Deposit Takers Bill, which includes details of deposit protection in the event that a bank collapses, with the Government guaranteeing deposits of up to $100,000 per eligible institution.

While the Government has long signalled plans around deposit protection, yesterday’s release revealed that Cabinet has agreed to a new process for setting lending restrictions, such as loantovalue ratios, moving some degree of powers from the Reserve Bank to the Beehive.

‘‘This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict. The Reserve Bank will then have full discretion to decide which instrument is best suited to use and how the restrictions are applied,’’ Mr Robertson said.

‘‘As with other prudential requirements, lending standards policies will be subject to more general requirements such as consultation with other government agencies and the public, and the Reserve Bank needing to have regard to the Minister of Finance’s Financial Policy Remit.’’

Currently, the Reserve Bank has the sole discretion over restricting bank lending.

One economist immediately warned the move appeared to ‘‘seriously’’ undermine the operational independence of the Reserve Bank of New Zealand.

‘‘The heavy hand of the Government is coming down in multiple areas,’’ independent economist Cameron Bagrie said.

Bagrie said while the central bank had operational independence, it resides at the discretion of the government of the day.

‘‘If this is for real, that independence looks as if it’s being seriously undermined,’’ Mr Bagrie said.

‘‘The Reserve Bank has got a financial stability objective. If you get the Minister of Finance or other entities wading in on who you can lend to and who you can’t, suddenly the financial stability objective becomes somewhat secondary to a political one.’’

Mr Robertson said the measures on deposit protection, part of a review of the Reserve Bank of New Zealand Act, ‘‘have been the subject of extensive consultation’’ and ‘‘will help protect New Zealand’s financial system and wider economy from damage that could be caused by excessive risktaking by the deposittaking sector and any resulting failures of institutions.

He added: ‘‘While New Zealand’s financial system is sound and wellpositioned to withstand the stress posed by Covid19, these reforms ensure the Reserve Bank is better equipped to protect and promote financial stability in the future.’’

Initially, the Government had proposed guaranteeing only up to $50,000 per institution, but this had been raised to $100,000 as a result of feedback.

‘‘This will fully protect 93% of depositors,’’ Mr Robertson said.