Finance firms can offer both guaranteed and non-guaranteed deposits in extended scheme

Financial institutions covered by the government's extended retail deposit guarantee will be able to offer both guaranteed and non-guaranteed deposits, a briefing paper released by Treasury says. Firms will be required to make clear to the public which accounts have a guarantee and which do not, it says. The extended deposit guarantee scheme will come into effect after October 12, 2010, when the current scheme ends. The extended scheme will run until the end of 2011 and has tighter entry criteria than current criteria. Firms are required to have a credit rating of BB or better to be eligible for the government guarantee from October next year. The Treasury report to Finance Minister Bill English, dated September 16 but released on September 25, outlines final documents on the extended scheme presented for the Minister's approval. A number of additions were made to guarantee deeds, including:

Institutions which join the extended scheme will be able to offer both guaranteed and non-guaranteed deposit accounts during the extension period. This change has been made to assist firms to transition out of the scheme by giving firms the option of having both guaranteed and non-guaranteed retail funding sources. Firms will be required to make clear to the public which accounts have a Crown guarantee for the extension period and which accounts do not. Treasury will make this clear in the information provided to depositors about the guarantee scheme including on the Treasury website.

Under the existing guarantee the Crown can only withdraw and replace the guarantee deed if the change is not materially adverse to creditors generally when compared to the terms of the existing deed. This provision was included in the deed to provide certainty about the terms of the guarantee deed. Under the deed for the extension period there will be a lower threshold for the Crown to be able to make changes to the guarantee deed in order to provide the Crown with greater flexibility in administering the deeds. Deeds will be able to be changed if the change does not withdraw the benefits of the guarantee from depositors that benefit from it.

Variations to the guaranteed entity's trust deed, or the terms of its debt securities that may increase the Crown's liability under the guarantee, are to be notified to the Crown.

The guarantee fee for an entity that is downgraded to a credit rating below BB will be the same as for BB rated entities (i.e. 150 basis points for finance companies and 60 basis points for banks and other NBDT's) (Aide Memoire, 8 September 2009).

As noted in Cabinet paper CBC (09) 88, as an added incentive for firms to improve their credit ratings, if firms improve their credit ratings over the extension period they will receive a refund back to 12 October 2010 for fees previously paid at the higher rate.