Have your say: Deposit guarantee scheme likely to be extended 1 year, says Key

John Key has signalled in speech in Melbourne that the retail deposit guarantee scheme in New Zealand is likely to be extended for a year to match the duration of the Australian scheme, The Press (Stuff) has reported.

Prime Minister John Key told a business audience in Melbourne yesterday that the Government was likely to extend its guarantee on deposits by a year to match the Australian guarantee. New Zealand's scheme was implemented by the former Labour government and will end in October next year, while Australia's has two more years to run. Key said that did not make sense, given that the New Zealand banking sector was dominated by Australian-owned banks. The Cabinet was considering the extension. "I would anticipate us making a decision on that within the next few weeks," Key said.

What I think Extending the scheme for a year will buy some struggling finance companies some time to repair their balance sheets and will give the new Reserve Bank regulatory regime for non bank deposit takers some time to bed in. Extending the scheme the sensible thing to do. But I'm not sure it will avoid carnage in October 2011. There may be a case for taking the pain now rather than letting a bunch of zombie finance companies stagger on for another year. The government certainly needs to start indicating what will replace it, if anything. My preference is for a deposit insurance scheme where the deposit taker pays the true cost of the insurance, not the big banks or the government. Your view? We welcome your comments and insights below