Our term deposit rate tables are changing.
With the Treasury and the Reserve Bank (RBNZ) working to introduce a bank guarantee for depositors, the Deposit Compensation Scheme (DCS), which will become effective some time in mid-2025, we need to prepare for that.
The DCS will cover depositors up to $100,000 per institution for any loss should an institution fail.
This cover is for more than banks.
The RBNZ regulates non-bank deposit takers (NBDTs) too, and those regulated institutions will also be covered. Apparently the RBNZ now has the power of on-site supervision for the purposes of assessing financial stability.
As a consequence, we have adjusted our savings and term deposit tables to identify the non-bank institutions to be covered by the DCS.
The risks to depositors will dramatically fall to be similar to banks when the DCS becomes effective. And that is because the taxpayer is making a guarantee promise.
Covered institutions (including banks) will pay a fee for the right to promote this protection to potential savers. That fee is to be "risk based" so will likely be higher for smaller institutions with consequent liquidity variations. And in turn, that fee cost will tend to restrict what they can offer for a deposit interest rate.
Because it is now about six months until the start of the DCS coverage, savers need to know who will be included. And that is why our rate tables now show a separate section for the NBDTs.
The current institutions registered as NBDTs are:
Christian Savings
Finance Direct
First Credit Union
General Finance
Gold Band Finance
Heretaunga Building Society
Liberty Financial
Mutual Credit Finance
NBS (Nelson Building Society)
Police and Families Credit Union
UnityMoney (Unity Credit Union)
WBS (Wairarapa Building Society)
Xceda Finance
7 Comments
I haven't seen the legislation/regulation however I'd question that assumption: the offered rates will drop when the guarantee comes in.
"Covered institutions (including banks) will pay a fee for the right to promote this protection to potential savers. That fee is to be "risk based" so will likely be higher for smaller institutions with consequent liquidity variations. And in turn, that fee cost will tend to restrict what they can offer for a deposit interest rate."
No deposit guarantee scheme in the world is protected by private insurers. They won't go near these risks. All are backed up by taxpayers, including the NZ one. Which is why people like me point out the moral hazard involved. It's just another subsidy for savers with money.
“The scheme will be pre-funded by levies on deposit takers and supported by a Crown backstop."
https://www.beehive.govt.nz/release/depositor-compensation-scheme-protects-kiwis%E2%80%99-money
I agree that a Crown backstop for the scheme is effectively the taxpayers subsidising those who get some funds back. However it seems the levies collected and the Crown is also effectively subsidising the deposit taker that got in trouble. Hopefully the deposit taker is forced into liquidation or is to be sold etc rather than being allowed to continue to operate. There would also be moral hazard if the deposit taker was allowed to continue to operate.
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