Deposit guarantee scheme provides extra security for depositors

The deposit guarantee scheme announced today by the government will provide even more security for people who have bank deposits.

“Our banks are among the best capitalised and regulated in the world. We saw their strength and resilience through the global financial crisis, when there were no bank failures or bailouts in New Zealand. And, again recently, through the economic impact of Covid-19, where our banks were able to help affected households and businesses get through.

“New Zealand’s banks are a very reliable place to keep your money. Today’s announcement will provide depositors with an extra layer of security for their money in the unlikely event of a bank failure,” says New Zealand Bankers’ Association chief executive Roger Beaumont.

“A deposit guarantee scheme has been well signalled by the government. We look forward to working through the scheme’s detail.

“One issue that will need working through is how the levies to fund the scheme are applied to participating entities. We support a risk-based approach to setting levies where lower risk entities, such as banks, pay lower levies because they are less likely to call on the scheme.

“Another factor to take into account are higher minimum capital requirements to be phased in for banks. That comes at a high cost for banks and is intended to help our banks withstand a one-in-200-year shock.

“It will also be important to work through how the scheme fits in with the broader crisis management frameworks. That includes the Reserve Bank’s Open Bank Resolution policy, which can, among other things, draw on deposits to help keep a bank afloat in the case of a potential failure.

“We look forward to working with the government on the proposed legislation,” Beaumont says.