"Again, the member is raising reasonable points," English said.
"One of the arguments for depositor insurance is that it effectively means that depositors prepay any bailout funds. Of course, that is not costless. That imposes costs on the whole economy, because, effectively, interest rates would have to be a bit higher to achieve that," he said.
'Still monitoring regime'
"As I have indicated, the Government has been monitoring both the current regime that is in place—open bank resolution, which does include Government guarantees of depositor funds—and the differences between our regime and, for instance, the Australian one, which is a pretty real-time issue: to have two different regimes applied to the same banks."
Peters then asked about the risks of depositors moving their funds to Australia in a crisis.
English responded that Standard and Poor's had assessed New Zealand's banks as sound and that the OBR system was sound. The risks of capital flight were there in 2008/09, but Australia may act differently in future, he added.
"Again, it is not clear in the future that an Australian Government would tolerate that kind of behaviour either. I am not criticising the member for raising the issues; they are all legitimate issues," he said.
English later said there were continued discussions between Australia and New Zealand about the differing systems.He said New Zealand's banks had higher capital requirements than international norms, strong core funding ratios and fast growing deposit bases.
"Any argument to change it would have to be pretty strong," he said.
Green call for deposit insurance
Green Party Co-Leader Russel Norman called for a deposit insurance scheme in New Zealand, arguing banks should pay an insurance premium.
“Our banks profit in the good times; they should set aside some money now to pay if things go wrong,” Norman said.
“Every other country in the OECD protects savers’ deposits with deposit insurance. It’s time savers in New Zealand were given the same protections savers in Australia have banking with the same banks," he said.
“Banks do fail. The BNZ failed the late 1980s and then again in the 1990s. National is leaving the taxpayer on the hook for another bailout as banks like the BNZ are too big to fail. Deposit insurance is a smarter alternative to a taxpayer bailout."
Norman said deposits up to NZ$100,000 each should be guaranteed.
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