Finance Minister Grant Robertson says the Government will introduce deposit insurance of $50,000 per individual per financial institution, a governance board for the Reserve Bank to oversee financial stability, and plans to follow bank reforms in Australia that aim to strengthen director and executive accountability.
The changes come in the latest Cabinet decisions from phase two of the Government's review of the Reserve Bank of New Zealand Act.
The key decisions made include:
- Responsibility for prudential regulation will remain with the Reserve Bank. This will: maximise synergies between the prudential functions and the Reserve Bank’s other functions; avoid the transition costs of establishing a new agency; and will be cost-effective given New Zealand’s size.
- The Reserve Bank will have a high level objective to protect and promote the stability of New Zealand’s financial system.
- A governance board (the Board) will be established for the Reserve Bank. This will have statutory responsibility for all the Reserve Bank’s functions, except those reserved for the Monetary Policy Committee. There will not be a statutory Financial Policy Committee.
- The two separate regulatory regimes for banks and non-bank deposit takers (NBDTs) will be united into a single ‘licensed deposit taker’ framework.
- A deposit insurance scheme will be established. The scheme will insure deposits up to a limit of $50,000 per individual, per institution.
'Protected depositors don't need to spend time monitoring the riskiness of their deposit taking institution'
With New Zealand an outlier among OECD countries in not currently having a deposit insurance scheme, this means if a deposit taking institution failed depositors would be dependent on a liquidation or receivership to try to recover their money, which the Government says could take years.
"An explicit deposit insurance scheme means that depositors will be able to have prompt and certain access to some of their money."
"Under the scheme, deposits held by New Zealanders will be protected up to a total of $50,000 at a single deposit taker. More than 90% of depositors are likely to be fully covered by the scheme, and many of the others would have most of their deposits insured. The coverage limit will be reviewed once the scheme is bedded in and better data are available. The number of depositors that are fully covered once the scheme is in place will depend on how many have multiple accounts at their institution, the Review does not currently have complete data on this. It will also depend on how responsive depositors are in splitting their accounts across banks and other deposit takers in order to maximise their coverage," the Government says.
"The funding for the scheme should come from levies collected from licensed deposit takers, i.e. a user-pays model where the costs are borne by institutions and potentially depositors benefiting from the scheme. The Government will provide a funding backstop, so that the scheme maintains public confidence even if systemic banks are under threat. Any funding provided by the government will ultimately be paid back by levies on deposit takers."
The Government says deposit insurance will mean protected depositors don't need to spend time monitoring the riskiness of their deposit taking institution, describing this as "a difficult task, even for sophisticated creditors that have large amounts of money at stake."
"The protection provided to depositors will also contribute to financial stability. The deposit insurance scheme is expected to enhance public confidence in the financial system, lowering the likelihood that financial stress is magnified by depositors withdrawing their money at the first sign of trouble."
The deposit insurance scheme will apply to all institutions that take deposits with a minimum set of supervisory and regulatory standards applied as a condition of being able to offer insured deposits.
The Government says there's more public consultation on depositor protection arrangements coming in early 2020. This will include further scoping of the deposit insurance scheme, including the nature of products it will cover, the amount and nature of prefunding for the scheme from the industry, the conditions for the government funding backstop, where the scheme will be located, and how it will be governed. Additionally there will be consultation on the possible role of depositor preference, where preferred depositors’ claims are paid out before the claims of other unsecured creditors in the event of a liquidation.
Robertson says Cabinet has confirmed a deposit insurance scheme limit of $50,000 per institution, after consulting on a range of $30,000 to $50,000. In comparison under Australia's Financial Claims Scheme, deposits are protected up to a limit of A$250,000 for each account holder at every bank, building society and credit union that is incorporated in Australia and authorised by the Australian Prudential Regulation Authority.
Two new acts of parliament coming
The NZ scheme will sit under a new Deposit Takers Act that will govern the Reserve Bank’s regulatory powers. A separate Institutional Act will outline how the Reserve Bank is governed and how it operates. Splitting the Acts allows all deposit-takers to be regulated under a single flexible framework, providing a more consistent approach to the regulation of the sector, says Robertson.
The Institutional Act will set out the Reserve Bank’s governance and accountability framework and provide for its central banking functions, including the monetary policy framework as enacted in phase one of the Reserve Bank Act review.
The two new acts will replace the 1989 Reserve Bank of New Zealand Act.
"It is intended for the Institutional Act to be introduced in mid-2020. Cabinet plans to make final policy decisions on the Deposit Takers Act and the deposit insurance scheme in mid-2020 following further consultation."
“New Zealand has a strong and stable banking system, but it is regulated by laws that are 30 years old. We’re making sure they’re up-to-date,” says Robertson.
"The Government’s proposed changes incorporate lessons from the Australian Royal Commission into banking. This includes an in-principle decision to follow recent reforms in Australia to strengthen director and executive accountability, following the recommendations in the Hayne report."
“It’s important that Kiwis have confidence in the people running our banks and know the consequences they’ll face. We’ve seen examples of how confidence was shaken overseas and we’re acting to make sure New Zealand has a world-leading accountability regime," Robertson says.
Governance
Changes will also be made to the Reserve Bank's governance. A document released by the Government notes the Reserve Bank is not a government department or Crown entity, having its own unique governance structure.
Phase one of the RBNZ Act review introduced group decision making for the formulation of monetary policy rather than having all the powers of a conventional board and chief executive sitting with the Governor. Cabinet has now decided that a governance board will be established for the Reserve Bank with responsibility for all matters, except those reserved for the Monetary Policy Committee.
The non-executive board will have between five and nine members, and responsibilities and procedures similar to those of a Crown entity board. The Governor will be the Reserve Bank’s chief executive and continue to be chairman of the Monetary Policy Committee.
Funding
The Reserve Bank’s funding will continue to be set through a funding agreement. However, some of the costs of its regulatory functions will be able to be collected through levies charged to regulated entities. A levy rate will be set in regulation, on the advice of the Finance Minister, following consultation with the Reserve Bank and the sector.
"A levy allows the costs of the regulatory function to be borne by those who benefit from the carrying out of that function. It is common for the costs of regulatory activities to be recouped through a levy...There have been no decisions on whether levies will be introduced, or the rates which will be charged. The levy would need to be calibrated to reflect legislative changes flowing from the Deposit Takers Act, which is likely to take several years. It would also need to take account of costs imposed by the deposit insurance scheme."
Co- ordination of financial sector regulators
Financial sector regulation features the Reserve Bank as prudential regulator, the Financial Markets Authority (FMA) regulates conduct, and the Commerce Commission regulates consumer credit. Additionally Treasury, the Reserve Bank, and the Ministry of Business, Innovation and Employment have policy responsibility for different parts of the financial regulatory system.
The Council of Financial Regulators (CoFR), co-chaired by the Reserve Bank and the FMA, meets quarterly to discuss financial market regulatory issues, risks and priorities. The CoFR coordinates collaborative responses to issues that require cross-agency involvement including system-wide monitoring and operational coordination. Cabinet has decided to create a legislative mandate for the CoFR to "underscore the importance of the CoFR and ensure it endures into the future."
Accountability of directors and senior executives to be strengthened
Cabinet has agreed, in-principle, to increase the accountability of the directors of deposit takers. This will be done by "imposing positive duties" such as the need to ensure that a deposit taker is run in a prudent manner, acting with honesty and integrity, and dealing with the Reserve Bank in an open and transparent manner. This would be enforced largely under a civil liability framework rather than a criminal one, with criminal sanctions reserved for cases of clear intent or recklessness on the part of directors.
Consultation planned for February 2020 will probe the design and specification of these new duties and the accompanying liability regime.
"Cabinet has also agreed that an integrated prudential-conduct ‘executive accountability regime’ should be developed which extends accountability requirements to certain senior employees of both deposit takers and insurers. This work will take place through a cross-agency process separate from the current Phase 2 Review, with consideration given to policy initiatives in other jurisdictions such as Australia. The terms of reference and timeframes for this policy work will be developed and publicly released in due course."
Strengthened RBNZ supervision powers
Cabinet has agreed in-principle to a number of changes to strengthen the Reserve Bank’s ability to supervise deposit takers, and take enforcement action in the case of breaches. This includes providing the Reserve Bank with the power to undertake on-site inspections as part of its supervision activities in addition to the introduction of a more graduated enforcement and penalty framework.
"Providing the Reserve Bank with a broader range of sanctions, such as enforceable undertaking and civil penalties, will support the Reserve Bank in shifting to a more robust supervision and enforcement model."
Firms that take deposits will be subject to a single deposit takers regime
The regulatory regime is expected to capture all lenders that offer transactional, savings and term deposit accounts to the public. This would capture the existing banks, credit unions, and building societies.
"A key outstanding question is how the regulatory regime will deal with lenders who predominately issue longer-dated secured debt, such as finance companies. Given the risks associated with this business model, as demonstrated by past finance company failures, it is important that there continues to be adequate prudential regulation and supervision of this sector. However, a number of submitters argued these entities should not be categorised as deposit takers as they offer investment products that should be differentiated from deposits and not subject to deposit insurance. The third round of consultation will seek feedback on the regulatory approach to these entities."
Modernising the framework for managing failed deposit takers including bail-in powers for the RBNZ
The Review has identified the need for a number of improvements to New Zealand’s bank resolution and crisis management regime to better align with international best practice, including learning from international experience during and after the Global Financial Crisis. Thus Cabinet has made a number of in-principle decisions to strengthen the resolution framework for deposit takers, including:
- designating the Reserve Bank as the resolution authority for deposit takers, with statutory functions, including planning for the resolution of deposit takers and exercising resolution powers
- providing for clear resolution objectives, including resolving deposit takers in an orderly manner, avoiding significant damage to the financial system and protecting public funds
- providing the Reserve Bank with the ability to ‘bail-in’ (that is, write-down or convert to equity) certain unsecured liabilities, as a new mechanism to recapitalise a failing bank, and
- establishing protections for bank creditors, including ensuring that creditors end up no worse off than they would be in an ordinary liquidation.
"Crucially, notwithstanding the Reserve Bank’s resolution planning function, deposit takers – particularly large banks – will be expected to provide substantial input into developing and maintaining their resolution plans. This reflects the need for resolution plans to closely reflect the nature of their specific business, for assessment by the Reserve Bank and as the main input to inform the Reserve Bank’s resolution planning."
"While there are a significant number of further details to work through in the development of the new resolution regime, these decisions will underpin an approach that better aligns with international guidelines. The new resolution regime will also provide the Reserve Bank with a wider range of tools to resolve a failing deposit taker without severe disruption to the financial system and without relying on taxpayer funds."
As detailed here the Reserve Bank's controversial bank failure tool, its Open Bank Resolution Policy (OBR), is not subject to the Government's RBNZ Act review.
The Reserve Bank will set prudential Standards
Cabinet has agreed in-principle that Standards should be the primary instrument for setting regulatory obligations on deposit takers. Standards will be set by the Reserve Bank, independently of Ministers but will be subject to Parliamentary oversight.
"This provides a greater degree of transparency and accountability in comparison to the current approach of setting requirements through Conditions of Registration. The third round of consultation will seek feedback on procedural requirements for standard-setting."
Increased oversight of the Reserve Bank
With the Reserve Bank one of the few agencies not currently subject to the Public Audit Act, the Auditor-General will be legislatively enabled to conduct performance audits and inquiries into the Reserve Bank’s activities. This will allow the Auditor-General to examine the extent to which the Reserve Bank is carrying out its activities effectively and efficiently, and inquire into any matter concerning the Reserve Bank’s use of its own resources.
The Reserve Bank will also be subject to the Ombudsmen Act which allows the Office of the Ombudsman to investigate administrative conduct by government agencies that affects a person or a group of persons. The Ombudsman may make recommendations for improvements to an agency.
Treasury will become the formal monitor of the Reserve Bank. The role of the monitor is to assist the Finance Minister, including by keeping the Reserve Bank's operations and performance under review.
Reserve Bank welcomes changes
In a statement Reserve Bank Governor Adrian Orr says he welcomes the changes:
"Financial stability is vital in maintaining and improving the wellbeing of all New Zealanders, and the financial stability objective will give greater clarity of purpose. These changes are an important step towards modernising New Zealand’s financial stability framework and the Reserve Bank’s governance and accountability settings."
"These decisions strike a balance between maintaining the independence of the Bank and ensuring there is greater transparency and accountability about the Bank’s work," says Orr.
He says the Reserve Bank will continue working with Treasury in overseeing the review, with the third and final round of consultation set for early 2020, focusing on the details of deposit insurance and the regulatory regime.
"We will be engaging industry in the new year to discuss what the changes might mean in practice and to provide further details about the consultation."
More detail is available on the RBNZ Act review changes here, and from Treasury here.
66 Comments
A fairer risk rated return on deposits should be a part of the picture, but who measures what is fair and how would it be imposed? Currently the banks rule the roost and for the average Joe Cabbage there is very little in the way of competition, so market forces will have little to no impact.
That is an important point, there is nothing to stop the bank from passing the costs on to their depositors, thus protecting their shareholders. The insurance is supposed to protect us from shady bank business practices but if the costs can be passed on to depositors, it will have not effect at all on their behaviour.
Yah, And about time too! Can't have the big four Australian banks taking high risks and ignoring AML regulations putting Kiwi customers at risk. We need some way to try to protect customers.
Here's an update on the Westpac fiasco; The Australian Prudential Regulation Authority (APRA) – the banking regulator – has ordered Westpac to set aside an additional A$500 million ($520m) in capital as an investigation gets under way that could end in hefty fines or the disciplinary action of high-ranking staffers. The lender was also accused of breaching money laundering and counter-terrorism finance laws, with Westpac publicly accused of 23 million breaches. Herald article: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Hardly "consistent with international best practice" given the small number of banks in NZ. The US (in comparison) provides US$250,000 per bank, with US$500,000 for a joint account for each bank. The NZ$50,000 is more of a 'de minimus' for when the RBNZ invokes OBR at some time in the future - to help prevent runs against other banks.
It might be consistent with regards to the percentage of deposits covered.
Average savings in NZ: 36k NZD
Average savings in the US: 133k NZD
Median would probably show a much smaller divide (9k NZD in the US, couldn't find stats for NZ).
Sources: https://www.finder.com/nz/best-and-worst-household-savers
https://www.cnbc.com/2018/09/27/heres-how-much-money-americans-have-in-…
The problem is the risk of underwriting an out of thin air credit creation racket falls squarely on the unsecured creditors, which in reality means bank depositors. The banks have virtually no skin in the game and yet they reap extraordinary profits at other's expense. Extending deposit insurance for the poor end of town officially endorses such disreputable behaviour.
To be fair, banks didn't have any skin in the game under the previous system either. The smallest banks maybe, but none of the big ones. I'm absolutely sure they'd be saved by the taxpayer (us) if there was no deposit insurance. Now it's gonna be saved by the depositors (us) and taxpayers (us) instead.
In that sense, I agree, nothing has changed. But having a written guarantee that my deposit is insured is much better than relying on my gut instinct that no government would allow an ASB or ANZ to default.
I guess the moral of the story is that we should all hold shares of the big banks.
Audaxes,
perhaps it does endorse disreputable behaviour, but for 'the poor end of town', I believe it is worth doing. On that point, if I and my wife each have $50,000 on deposit with 6 banks, then we would have protection for $600,000 and few have more than that in cash as a percentage of the population.
Of course, all this is just tinkering with the problem. Bank leverage is way too high and I would go much further and adopt some form of the Fisher Plan, or as it became known the Chicago Plan. Irving Fisher proposed to fundamentally readjust the balance of risk in the banking system in his paper 100% Money. His proposal was that any deposit that could be withdrawn or used to make a payment on demand be backed by sovereign money-and banks which offered such deposits be permitted to do no other business. As Felix Martin wrote in his book Money, "Outside the realm of 'Check Banks', even the dodgy promise of liquidity transformation would be permitted".
The plan was revived in the 60s by Friedman and was the subject of a study by the IMF which corroborated Fisher's argument that it would lead to greater macroeconomic and financial stability. See Benes and Kumhof 2012.
You would think, in an apocalypse/doomsday scenario, where the barter value of gold collapsed, that the land value of NZ would increase. Owning to the fact that NZ is isolated and protected from the rest of the world. So, the guarantee should be 1 hectare of NZ land (including concrete bunker) per institution per person.
What's the point of Depositor Insurance, apart from it being a psychological crutch? If, say, ANZ goes down, what do we think the $50k insurance policy will be worth? Will you get it in $100 notes? Because if ANZ goes, are you going to put it electronically into Westpac (using opposite alphabetical choices for this example)? And will you even leave what you have left in Westpac or BNZ of ASB or...?
If the banking system in this country ever gets to a stage where Depositor Insurance is claimed on, $50k won't buy you much at all.
But the Insurance Policy will be an additional cost to the banks that they will have to recoup from someone, and that....is going to be... you!
It's still a guarantee where there was none before.
I don't think one or two bank's defaults would cause a total collapse of the value of NZD, so that $50k would at least be something. The current system is that you get $0*, which is definitely not worth anything.
*That said, the RBNZ would probably save the naughty bank's ass if it was a big one. Sorry for that mental image.
Under OBR there was always a guarantee option - a de-minimus amount to be kept back prior to hair cut and post haircut was guaranteed by the crown. All that this has done is put a minimum amount in place. Just read the OBR policy carefully - -its all there - just lazy journos never picked it up.
"What's the point of Depositor Insurance, apart from it being a psychological crutch?"
To reduce the risk of a bank run by bank depositors, and reduce the liquidity needs of banks. Imagine that there was no guarantee, and depositors were concerned about the safety and recovery of their deposits? Refer Northern Rock - https://www.youtube.com/watch?v=sKjdT8I6TnE
Many small bank depositors with balances below $50,000 will have peace of mind and not withdraw their funds. They will also be able to have continued access the funds for daily living costs.
In Greece, the bank ATM's limited the daily withdrawal amounts to 60 Euro per day during their banking crisis -
1) https://www.youtube.com/watch?v=32AR7ISGbNo
2) https://www.youtube.com/watch?v=rSGKSeqehmc
3) https://www.youtube.com/watch?v=ILVasoAE5oI
4) https://apnews.com/57fcf1f4694a486aa4b7cd43095ae8ee/After-3-years,-Gree….
5) https://en.wikipedia.org/wiki/Capital_controls_in_Greece)
Lets be very clear here... bank depositors will pay for this.
"The funding for the scheme should come from levies collected from licensed deposit takers, i.e. a user-pays model where the costs are borne by institutions and potentially depositors benefiting from the scheme"
So after the RBNZ telling the banks to increase capital to make them safer less than two weeks ago.. which will be borne by depositors and borrowers alike, we now have this further blow to depositors saying you will pay for the benefit of the insurance.
Why wasn't this included in the discussion for the capital review?
Quite simply, if the RBNZ is going to make the banks effectively double the amount of capital they hold, then why do I have to pay to insure my deposit?
This makes the whole capital discussion/submissions and proposal completely useless.
Seriously... the incompetence of Robertson announcing this now is embarrassing. He must go.
"'Protected depositors don't need to spend time monitoring the riskiness of their deposit taking institution'"
Only partly true. OBR was better in some cases. Now everything above 50k can be taken by the bank rather than a haircut of probably 20% max. under OBR A minority, any one with more than 50k and probably less than 5% of individual depositors has the risk socialised. A deathly silence from Winston first. Oh yes he's Labour heavy. Nats will stay quiet as the general electorate will applaud this. Time to shift into property?
"More than 90% of depositors are likely to be fully covered by the scheme, and many of the others would have most of their deposits insured."
Note, 90% of the NUMBER of depositors, not 90% of TOTAL bank deposits.
10% of the number of depositors are likely to provide more than 10% of total bank deposits - this includes the cash balances of businesses in transaction accounts, particularly large businesses who need cash balances to pay payroll, invoices, etc. Also there are a few large institutional investors who are place large deposits in banks - such as money market mutual funds. These bank depositors will have deposits above the proposed $50,000 guarantee limit.
Any corporate treasurer or money market fund who senses credit risk rising in their bank may be inclined to pull their cash deposits out. Money market funds may also be invested in bank issued commercial paper, & short maturity bonds, so a money market fund may also be reluctant to refinance maturing commercial paper, and bonds upon maturity.
FYI, 90% of number of depositors are 40% of the total deposits.
Refer https://www.interest.co.nz/banking/100359/government-signs-principle-de…
Basically, yes, if you are concerned about the banks going bankrupt and want to be covered by the guarantee scheme.
Alternatively, you could open a single bank account in Australia and deposit all your funds there and you would be covered by the A$250,000 guarantee limit. In that instance, you would be exposed to foreign exchange rate risk. Some large corporates may choose this option, especially if they already have wholly owned business operations in Australia.
Alternatively, you could buy NZ government bills, or bonds, which currently have low credit risk. http://www.worldgovernmentbonds.com/credit-rating/new-zealand/
I know of a person who previously lived in Hong Kong, and still has bank accounts at HSBC based there. That person could remit their NZD in a NZ bank to that HSBC bank account in Hong Kong and keep it in NZD there. They then have exposure to the credit risk of their bank in Hong Kong where their funds are held. Any large NZ company may also do this to reduce credit risk to the NZ banks.
Lots of different ways to reduce credit risk exposure to the NZ banks.
Here are the current credit ratings for the banks in NZ
https://www.rbnz.govt.nz/regulation-and-supervision/banks/prudential-re…
Interesting about the commentary on depositor preference - that is the real big news - means the small guys get in front of the big boys - even with the existence of the deposit insurance not enough
So Deposit insurance - for basics, then depositor preference for the rest of retail, and then the big end of town. Then you watch how the banks will be monitored - cause the big end will wear the losses rather than the small end - a good change
Are you sure.
The first losses of a failing bank are borne by the bank's shareholders and subordinated creditors, as they would under liquidation. Under OBR however, a portion of depositors' and other unsecured creditors' funds are frozen to meet any remaining losses, while the unfrozen part is subject to a government guarantee to give depositors confidence in the re-opened bank.
https://www.rbnz.govt.nz/news/2012/11/open-bank-resolution-broadening-t…
Yup sure. What you are referring to isn't a bail in. Its a normal creditor position. The OBR is simply designed to stop a run on the banking system. OBR or not, if a bank loses more than its got in capital, your deposits are at risk.
Clearly what the Government is talking about here is designed to protect depositors so would need to be worked out in conjunction with the OBR plans of the RBNZ.
Exactly OBR comes before government guarantee. My finger's still on the hair trigger to get my money out. I'm glad the government is limiting it's liability though. The Bank of England wasn't able to rescue Barings because the quants couldn’t figure out how big the derivatives losses were. Bank deposits are the banks leverage over the government.
Ok.. so note this will go thru a consultation process before being finalised.... but for your guide in Australia the bank pays the insurance .. which for a AA- rated bank is 70bps.. that is 0.70%.
In Australia a 1year deposit rate is ~1.2%.. in NZ ~2.6%.
Their cash rate is 0.25% lower... but introduce deposit insurance and we are likely to see deposit rates comparable with that of Australia.
Im wondering at what stage does Winston speak up for the purple rinse brigade... cos it'll leave many pensioners already struggling in a real predicament with very low income.
Lets not mistake the intergenerational inequity in this.. the government will collect the insurance levy from banks to build up a pile of money for when a bank falls over.... not gonna help the older generation is it?
50k is not enough. It’s way less than Aust, US, Canada and the UK. If you happen to have $500k+ cash set aside for investing (say property and shares) in the short to medium term, for when markets inevitably turn down, it becomes a bureaucratic hassle to hold 50k in 10+ accounts spread over 5+ institutions. Annoying.
If this is the first time you start wondering how robust the monetary system is, and you have so much money in deposits that $50k might as well be $50 to you, then boy you've got some reading to do...
Deposits are advertised as risk-free investments but they're far from it. The risk level of your deposits most likely correlates with your bank's lending practices.
The previous guarantee that labour brought around the time of the GFC provided far more protection than this.IMO what it is supposed to achieve is a run on the banks, but if 10% of money isn't protected, and there isn't enough to cash out, it could still create problems.
50k is nowhere near high enough. Covering 90% of people , is not the same as protecting 90% of money in the banks. It is going to mean that people are going to put their money into higher risk places that will also be covered by this guarantee. But I guess it could mean better returns in those higher risk institutions. So it will mean that people will have to setup more accounts with different institutions, which just means a lot more paperwork and managing where it is . Also it will potentially push up house prices even more, as more people put their money into housing which people may see as being safer and more stable..
Wait.... what? Why would it push up house prices now? No such guarantee existed before. Why would the introduction of *some* guarantee push up house prices?
Same goes for your theory about people having to invest in higher risk investments. It's not like the guarantee was for an infinite amount of money before... it was for $0. Zero dollars. Now it's $50k.
I was meaning that if there is a 50k limit, savers with a lot of money would be looking to distribute their saving at other financial institutions that are covered by the guarantee, which have a lower credit rating than the banks. Potentially they could earn more interest from these lower credit rating institutions as well.
Likewise, it also pushes more people into buying houses, if they have more money than they can get guaranteed. Yes money wasn't previously guaranteed either after the government removed full coverage, but this does make it more clear who will be covered. Previously we have the open banking resolution thing, which was pretty vague and confusing.
"What if I think the banks are safe and don't want the guarantee."
If you are confident that you can do your own credit analysis, then there are the non bank deposit takers. CAVEAT EMPTOR - remember that a large number of the non bank deposit takers went bankrupt in 2006-2012 - https://en.wikipedia.org/wiki/Finance_company_collapses,_2006%E2%80%932…
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