By Gareth Vaughan
Taxpayers' are still guaranteeing about NZ$8.12 billion worth of bank bonds through the Crown Wholesale Funding Guarantee Scheme even though the scheme closed nearly two years ago.
Launched by then-Finance Minister Michael Cullen at the height of the global financial crisis on November 1, 2008, the scheme closed on April 30, 2010.
However, debt principal issued by ANZ, BNZ, Westpac and Kiwibank with a combined value of about NZ$8.12 billion continues to carry the guarantee until it matures, with the last of this - US$71 million from ANZ - not maturing until November 19, 2014. Treasury says no provision is made for losses under the scheme as the probability of loss is considered remote.
Although the Australian parents of the New Zealand banks moved to buy back some of their debt guaranteed under Australia's equivalent scheme, the New Zealand banks won't be doing the same. That's because the Australian banks have had to pay monthly fees on all their outstanding guaranteed debt. In contrast the New Zealand banks had to pay Treasury fees upfront when each guarantee was granted (there were 25 in total), and Treasury says they're non-refundable.
Of the wholesale debt still guaranteed, principal worth just over NZ$2 billion stems from BNZ, NZ$2.1 billion from ANZ, NZ$3.7 billion from Westpac and NZ$320 million from Kiwibank. ASB didn't raise any wholesale funding under the scheme. Should any of the banks with wholesale government guaranteed debt on issue get into trouble before the debt matures, the taxpayer would have to foot the bill.
Of the outstanding maturities, a significant sum doesn't mature until 2014. Westpac has NZ$1.875 billion of maturities in July 2014, Kiwibank's A$250 million bond issue matures in October 2014, BNZ has NZ$791 million of maturities in 2014 and ANZ US$171 million.
The combined total guaranteed by taxpayers is down from NZ$10.4 billion at June 30, 2010. In the year to June 2010, the Crown received NZ$76 million worth of fees for the scheme. When the scheme was closed, Finance Minister Bill English said the government would receive almost NZ$290 million in fees in total. The Government received a fee from each participating institution based on the institution’s credit rating and the term and amount of guaranteed debt issued.
The scheme was initiated as an opt-in wholesale funding guarantee facility. At the time Treasury and Cullen said the objective was to facilitate access to international financial markets by New Zealand financial institutions, in a global environment where international investors were highly risk averse and where many other governments had offered guarantees on their banks’ wholesale debt.
Banks using the guarantee must maintain an additional 2% capital buffer, on top of the existing required 4% Tier 1 capital, to help protect the taxpayer's position as guarantor.
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4 Comments
Iain ....you are wasting your time...the entire country dances to the bankers tune...most Kiwi have no understanding of where credit comes from...this is a case of protect yourself from the thieving system and if in debt, get out of it as fast as possible...and stay out.
I expect the govt to begin the new spin to ease the peasants into accepting as fact that it's not the govts fault but there will be no surplus...not for a very very long time....and that if the peasants are really really lucky, we might remain in this new normal state for at leasat two decades....if however the piigs farce evolves into a full blown fiasco...then life for most Kiwi peasants is set to get a good deal worse.
My money is on things getting worse for longer....and on the immigration gates being tossed in the sea.
Ian, it would seem to me you are talking crap.
A bank has three sources of raising money - bank deposites, overseas bank borrowing and the governement.
When a bank borrows from the governement the government first issues a bond which incures interest at the official cash rate.
When a bank borrows from oversea's it pays the overseas lender interest.
When a bank has depositors it pays interest on the deposite.
In each case the bank can lend 6 times the deposite. So if a bank borrows $1.00 dollar from say the government at 2.5% interest it pays $1.025 as the cost of goods.
Then when lending the bank can lend $6.00 at 5% interest giving a return to the bank of $6.30
The $5.00 (1 + 5 to = 6), is credit expansion and probably pocketed by the bank when fully repaid. The 27.5 cents (0.025 +0.275 = 0.30), is profit after cost of goods.
It's quite a scheme they have and best not tampered with by questioning people like you and me.
If you are afraid of the idea that banks create money, I suggest you might want to actually find out. It is a fact, Iain is correct to say that, though actually explaining this is probably not easy to express in a single post.
Here is a good source, maybe you could consider reading the book (Which is forwarded by an ex-member of the the Bank of England monetary policy committee).
http://neweconomics.org/publications/where-does-money-come-from
The system is not significantly different in NZ.
Or just watch this... Money As Debt http://www.youtube.com/watch?v=Dc3sKwwAaCU
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