Treasury to release files on events surrounding collapse of South Canterbury Finance later this week

Treasury will publish documents related to South Canterbury Finance's membership of the retail deposit guarantee scheme and events leading to its receivership later this week, Finance Minister Bill English said.

The release of the documents follow a large number of Official Information Act requests on the government's handling of the collapse and bailout of the failed finance company, which was placed in receivership in August owing investors NZ$1.6 billion.

“The documents will confirm that the Government and officials worked carefully and thoroughly through the issues on behalf of taxpayers,” English said.

Meanwhile, English said he welcomed a performance audit of the retail deposit guarantee to be carried out by Auditor-General Lyn Provost.

The audit will look at how the scheme was implemented and managed by Treasury and will identify improvements that could be made to the scheme and future schemes.

Provost said she did not anticipate the audit would cover whether the scheme was an appropriate response to the international financial crisis, given it was a "clear Government policy decision".

Furthermore, it would not look at the appropriateness of the design of the scheme, nor the adequacy of the provisions for guarantees in the government's financial statements, given that her office had already looked into that.

Here is the release from English:

Finance Minister Bill English has welcomed confirmation that the Auditor-General will complete a performance audit of the Crown’s Retail Deposit Guarantee Scheme.

The Auditor-General signalled in her 2010/11 annual plan that she intended to carry out a performance audit to examine aspects of how the scheme was implemented and managed by The Treasury. The audit was proposed because of the economic and financial significance of the scheme.

The audit will include an assessment of how effectively and efficiently Treasury has:

• Identified and monitored the risks to the Crown posed by financial institutions covered by the scheme – including The Treasury’s monitoring of South Canterbury Finance.

• Identified and monitored how well the scheme has met its objectives.

• Attempted to improve the scheme based on findings of its monitoring.

• Explained the purposes and functions of the scheme to Parliament and the public.

The audit will identify improvements to the scheme or future similar schemes.

The Auditor-General will not examine whether the scheme was an appropriate response to the international financial crisis or the appropriateness of the scheme’s design.

It is expected that the audit’s findings will be reported to Parliament by 30 June 2011.

“Given the Crown’s payout last month under the scheme to South Canterbury Finance depositors, an independent performance audit of the scheme’s operation by the Auditor-General is timely and appropriate,” Mr English says.

“This is certainly preferable to some kind of ill-defined and politically-motivated inquiry, which opposition parties called for in the days following South Canterbury Finance’s collapse.

“The original scheme was set up by the previous Labour Government in October 2008, and supported by the incoming National-led Government.

“At that time, turmoil in world financial markets led many other developed countries to take similar steps to protect their financial systems – and some were forced to go much further and nationalise their banks.

“In September last year, the Government moved, with the unanimous support of Parliament, to extend the Retail Deposit Guarantee until the end of 2011 on significantly more restrictive terms than before.

“It’s therefore appropriate that the Auditor-General now looks at how the scheme was implemented and managed,” Mr English says.

Meanwhile, The Treasury will later this week publish a large number of documents related to South Canterbury Finance’s membership of the Retail Deposit Guarantee and events leading to its receivership in late August.

“The documents will confirm that the Government and officials worked carefully and thoroughly through the issues on behalf of taxpayers,” Mr English says. “As we’ve said, throughout this process the Government had three objectives:

“Firstly, making sure South Canterbury Finance depositors had some certainty under the terms of the guarantee. Secondly, we wanted to sure that the cost to taxpayers was minimised. And thirdly, we wanted to keep disruption to the wider economy to a minimum.”