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10 Comments
Well then David Maclean you should be encouraging the Government to put a deposit guarantee in place in case your bank fails! If Westpac or any other bank in N Z should get into financial difficulties they can steal their depositors cash to prop up the bank to stop it failing! I am still horrified at the people I talk to that do not realise this!
ok... here is a thought exercise for you...
- Westpac offer a 1 year term deposit at 3% and with it a 1 in 100 year chance you don't get all your money back.
- Westpac offer a 1 year term deposit at 2% and with it a government guarantee.
Which do you choose? Is 1% the right amount to pay? What if you were willing to accept a 1 in 200 year chance at 2.25%?
I know people will say 1% is too much... and that is exactly the right question. How much should you pay for that level of safety?... that is the question we should all be asking?.. cos the RBNZ have seemingly decided what our collective risk appetite is and the banks will pay us a deposit rate accordingly..... and the RBNZ by their own admission have not conducted any cost-benefit analysis at all.
There's no point to non-compulsory government backed deposit insurance. No one would use it until the banks were at significant risk of failure and then we all jump on it so their would be no profit or fund built up and it would just be a taxpayer funded bailout. Plus the insured returns would barely above kiwibonds.
The best thing that I can think of that would come from optional deposit insurance is get the public to consider the question: "Why would I need deposit insurance?".
Exactly the point of my thought exercise. Do we really need it? At what price? Aren't the banks safe enough?
We all saw what happened when we did have deposit insurance... investors piled into South Canterbury Finance cos they offered better rates.... no one cared about the risk.. it was insured.
Its the very reason the RBNZ are against deposit insurance... moral hazard.
Here we go again - the vested interests trying to hold on to their exorbitant profits, and clinging desperately to the perpetual growth model that is slowly killing us all.
I hope the government and the RBNZ Governor has the courage to stay the course at least, or run a little harder.
Without the Crown guarantee due to the gfc banks were dead in the water, any other business would have been left to fail, we need to ensure that the tail does not wag the dog, this is an example of the free market failure and another example of socialising the losses to taxpayers and capitalising the profits to shareholders. Great risk management not available to small businesses.
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