Savers will be able to identify products covered by the Depositor Compensation Scheme through a logo currently being designed by the Reserve Bank

The Reserve Bank (RBNZ) says it is developing a trademark to be stamped on all banking products covered by the incoming Depositor Compensation Scheme (DCS). 

The scheme would reimburse customers up to $100,000 if the financial institution holding their money were to collapse. This could be a retail bank, deposit taking finance company, building society or credit union.

It is primarily designed to cover term deposits and regular bank accounts, but may also insure balances held in credit cards and revolving credit facilities.

Whatever financial product customers are considering, the RBNZ wants it to be easy to recognise whether or not it would be covered by the deposit insurance scheme. 

Jess Rowe, a RBNZ senior manager of prudential policy, said protected products would be stamped with an “instantly recognizable” trademark. 

“We're also currently working with industry to develop a brand and identity for DCS protected deposits, so that New Zealanders should be able to clearly identify which products are protected from mid-year”.

This is a common feature in similar schemes overseas and an important part of how banks offer products to potential customers. People were used to seeing the trademark and would notice when it wasn’t there. 

“We are going through the process at the moment, to design what that logo might look like”.

One example could be the Canada Deposit Insurance Corporation which has a logo featuring a purple padlock, which signifies a product is covered by its scheme. 

In the United States, the Federal Deposit Insurance Corporation has recently updated its official logo which is required to be displayed on bank websites, applications, and ATMs.

The Deposit Insurance System of the People's Republic of China also comes with an official logo, which is a green character similar to the word ‘public’ written in the shape of a tree. 

Australia’s scheme has a badge which can be displayed on relevant products featuring the words “guaranteed deposits” and “$250,000” in black and white writing. 

New Zealand’s central bank hopes to have the logo ready to be stamped on products by the middle of next year when the DCS is due to launch, although that isn’t a hard deadline. 

Moral hazard? 

Reporters also asked whether there would be any risk-rating as part of this logo, perhaps similar to the investment risk numbers shown on KiwiSaver disclosures. 

Kate Le Quesne, a director of prudential policy at the RBNZ, said the logo would simply say whether the product was covered and wouldn’t attempt to assess its risk level. 

“There are other other ways for customers to understand the nature of risks within entities through, for example, disclosure regimes, as well as the range of data that we publish on our website”. 

Rowe said the potential moral hazard was partly addressed by funding the scheme through risk-based levies. This means higher-risk deposit takers will pay more than lower-risk ones. 

That should mean that higher risk institutions—such as finance companies—still have to offer higher interest rates than safer retail banks, although the difference may shrink. 

Christian Hawkesby, an assistant governor at the RBNZ, said the scheme could change customer behavior, as it will remove most of the risk for balances under $100k. 

“[But] we do think that there will still be differentiation, in terms of the different rates that institutions can raise deposits at, depending on the risk, and that's what you see internationally as well,” he said.