Cost of deposit scheme $500m

AS 2012 ends, the final numbers are in for amounts paid by the Government to investors in failed finance companies since the Global Financial Crisis started in 2007. And that allows a better calculation of the overall cost of the scheme.

Depositors have been paid a total of $2,008,240,000 under the Retail Deposit Guarantee Scheme, with the final payments made in October of this year, Treasury said last week.

However, that $2 billion is not the final cost to the taxpayer, as recoveries are ongoing from liquidations and other activities. Depending on how this plays out, a range of fiscal outcomes are possible, a Treasury spokesperson said.

Cash distributions from receivers, the assets from receiverships that were transferred to Crown Asset Management, which manages the liquidation of assets received by the Crown under the scheme, recoveries received and still expected to be received from receiverships, and fees will all reduce the cost to the taxpayer of deposit guarantees provided during the financial meltdown.

Treasury said, for example, there was $484 million in fees paid by members of the retail and wholesale guarantee schemes that had been received by taxpayers, leaving a smaller net cost.

The Government operated the Retail Deposit Guarantee Scheme from October 2008 to December 2011. The original scheme expired on October 12, 2010, while the extended scheme expired on December 31, 2011.

Treasury’s 2012 annual report said nine companies guaranteed under the scheme were placed into receivership.

‘‘The Crown has met its obligations to depositors under the schemes, with the exception of a small number of depositors whose deposits remain unclaimed,’’ the report said.

‘‘The rights of recovery from the receivers are recognised as assets.’’

The eventual return to the taxpayer is dependent upon the value that can be realised from these assets and the timing of such receipts.

Recoveries in 2010 totalled $35 million, while $142m was received in 2011 and $467m in 2012. Recoveries expected in future years are an estimated $270m.

That means with fees, the cost of the scheme to the taxpayer could be just over $500m.

Payments to depositors under the scheme began in 2009, with $56m being paid. In 2010, that dropped to $15m, but then rose to $1.9b in 2011. In 2012, $34m was paid out, while in the year June 2012 to 2013 a further $1.2m has been paid. Treasury has not yet published a final tote-up of amounts paid to the depositors of each failed finance company.

On October 12, 2008, the Government decided that it needed to implement a deposit guarantee scheme to avoid a flight of funds from New Zealand to Australian institutions after Australia implemented its own guarantees.

The scheme offered a guarantee over money deposited or invested with financial institutions – banks and ‘‘non-bank deposit takers’’ – mainly finance companies. The Crown guaranteed up to $133b in investor funds.

Earlier this year, the AuditorGeneral reported the scheme had achieved its goal.

‘‘No banks in New Zealand failed, and there was no run on banks. Many of the other finance institutions also survived the global financial crisis. The economy was stabilised,’’ the Auditor-General’s report said.

However, it was set up at breakneck speed and that was costly. ‘‘This task was done at the expense of setting up good governance arrangements for the overall management of the scheme and planning for the rest of the work that would be needed.

‘‘In my view, the Treasury should have been doing both. Those early and very busy months were also when stronger governance frameworks, escalation procedures and strategic management were needed most.’’

‘No banks in New Zealand failed, and there was no run on banks.