Deposit guarantee doubles

Deposits of up to $100,000 per institution will be guaranteed in the event of a bank collapse, the Government announced on Thursday.

As part of a long-term review of the Reserve Bank of New Zealand, the Government proposed protecting deposits of up to $50,000 in each failed bank, but Robertson said it had raised the amount as a result of feedback. “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,” Robertson said. The move would guarantee 93 per cent of depositors, he said.

Surveys have shown that most bank customers already believe deposits carry a government guarantee, while some surveys have warned that creating a guarantee will increase risk-taking by the banks.

“Deposit insurance puts New Zealand taxpayers on the hook for banks’ risk-taking and increases instability in our financial system,” Act leader David Seymour said.

“It creates a moral hazard, that is banks and savers will take bigger risks because they’re insured.”