Labour’s Finance spokesperson David Parker says a Labour-led Government would ensure the first NZ$30,000 of all bank deposits would be protected, and not subject to a haircut in the event of a bank failure.
Parker's comments come after Green Party co-leader Russel Norman yesterday said the National Party-led government ought to force the Reserve Bank to abandon its "Cyprus-style solution" to bank failures in favour of an Australian style deposit guarantee scheme.
“The cost of that guarantee must be borne by the banking system, meaning it would be a cost paid by banks that did not fail," Parker said. "This is the system used in Australia and it should also apply here. Why have a different system in New Zealand than in Australia? It creates yet another reason to move to, or invest in, Australia rather than here."
Parker said the Reserve Bank’s proposed Open-Bank Resolution (OBR) Policy means all unsecured Kiwi depositors in a failed bank will lose money through no fault of their own.
"Yet under current National policy, some overseas lenders to banks have recently been protected through covered bonds, which increase the risk to ordinary depositors. That’s not a fair system," Parker said.
“This means that Kiwi households will be forced to help bail out banks while overseas lenders have their money protected."
According to Reserve Bank figures, there was a fraction under NZ$110 billion sitting in term deposits as of January. And as of the end of 2012, New Zealanders had total deposits with banks of just under NZ$115.2 billion.
Norman yesterday questioned why the Reserve Bank was introducing OBR when the majority of other Organisation for Economic Co-operation and Development countries use deposit insurance schemes instead.
In Australia bank deposits are protected up to A$250,000 per person per institution. The Aussie scheme evolved out of the country's retail deposit guarantee scheme, which was introduced at the height of the global financial crisis in October 2008.
Aussie depositors also benefit from the preferred status granted to Australian depositors over other unsecured creditors in the event of the insolvency of an Australian authorised deposit taking institutions. This legislative provision is referred to as depositor preference.
New Zealand's own Crown retail deposit guarantee scheme ran for 38 months from October 2008 until the end of 2011 and cost taxpayers' around NZ$1 billion largely due to the demise of South Canterbury Finance.
18 Comments
David Parker is correct. The banks should be required to take out insurance on depositors funds, and I do not believe there should be a limit. The cost of the insurance should be borne by the bank, as it is their incompetence we are guarding against, and any payout should go to the depositor, not the bank. If this means the bank is to fail, let it.
As to the Governments discussion around bank bail-outs; why is the Government using public funds to rescue private, profit making institutions? The banks leadership should be more accountable for their performance.
............good luck with that.....if the banks fail I would have little confidence in the insurance companies haveing anything like the ability to make good.
The answer lies in the depositors hand...if you don't like the risk, take your money out. Simple. No one is actually forcing you to lend your money too them.
My previous advocacy of charging each bank an annual licence fee of $½ billion has never gained any traction around these here parts.
It would bring in annual income of at least $2 billion
Placed in a Trust Fund similar to EQC
There for a rainy day
Maybe now it can be seen in a different light.
Way to go Labour !!!
First you outbid them on housing in Auckland, now give them the knock out punch on Banking safety ......
$300,000 houses in Auckland....one vote
Banking Insurance payable by Banks themselves...Another vote.....
Just make sure your message is coherrent and simple for even idiots to digest....
Labour’s Finance spokesperson David Parker says a Labour-led Government would ensure the first NZ$30,000 of all bank deposits would be protected, and not subject to a haircut in the event of a bank failure.
Parker said the Reserve Bank’s proposed Open-Bank Resolution (OBR) Policy means all unsecured Kiwi depositors in a failed bank will lose money through no fault of their own.
"Yet under current National policy, some overseas lenders to banks have recently been protected through covered bonds, which increase the risk to ordinary depositors. That’s not a fair system," Parker said.
“This means that Kiwi households will be forced to help bail out banks while overseas lenders have their money protected."
While I do not wish to indulge in open warfare on this topic - why is it ok for larger depositors to always be open to losing their capital without the preference extended to covered bond holders, small depositors, collateralised lenders such as the RBNZ and who knows else?
Why not force the banks to secure the larger sums deposited by individuals/corporations? - that would sharpen all banks risk taking management skills.
Large depositors made a huge capital contribution to society in so far as they supply the source of their income from their own resources rather than others, including foreign loans.
Simply open aa account in Australia deposit your funds directly into the Australian Banks in Australia you are covered to the first $250,000 why would you deposit your funds into a tin pot Kiwi branch, that the bank will cut away from at the first sign of failure.
Banks in NZ want their cake , yours , mine and the kids.
I have been suggesting people do this ever since the NZ deposit guarantee lapsed. As a NZ citizen it is a straight forward process - though you may have to turn up at the particular branch in person for ID purposes. There are web/blog sites describing how people do this (usually its Kiwis preparing in advance for their move to Australia).
A handy tip - open accounts jointly - under the Aussie deposit guarantee scheme, each individual is entitled to $A250,000 of cover per bank, so a joint account gives you cover up to A$500,000.
At the slightest hint of trouble in the NZ banking system cash would cascade across the Tasman, all because we lack an equivalent to the Aussie deposit scheme and have in place the wonderful OBR. In practice I should think the govt of the day would be forced to rush in a deposit scheme in such circumstances (just as happened in 2009). The incredibly annoying thing is - why, if they will be forced into this action anyway, dont they set a scheme up now, and harvest some funds from the banks in advance towards its potential costs.
Oh I remember now why they dont do that - because the government and the RBNZ have been captured by the retail banks.
LOL if a NZ bank (aka Australian Big Four Subsidary) falls over, I'm sure securing deposits of $30k will be the least of NZ's worries.....
How about we make the board personally liable, that would take the risk to depositors down to nil......
Heaven forbid the depositor take any responsiblity for the institution THEY voluntarily hand their savings over to......
Mish supports RBNZ OBR policy position...!....what mish does not do is to expose the extent to which easy cheap credit flowing from the banks in NZ, has engineered the system to ensure the banks get to 'farm' the economy and control govt policy.
http://globaleconomicanalysis.blogspot.co.nz/2013/03/fraudulent-guarantees-fictional-reserve.html
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