RBNZ and Treasury release detail of deposit guarantee scheme
The Minister of Finance announced today that the Government has
introduced an opt-in deposit guarantee scheme. The scheme covers
deposits for New Zealand-registered banks and eligible non-bank
deposit-takers (including banking societies, credit unions and finance
companies).
As noted in his statement, the Reserve Bank and the Treasury are now
releasing more detail about the scheme.
"The purpose of the scheme is to assure New Zealand depositors that they
can be assured their deposits are quite safe and the New Zealand
financial system is sound," said Reserve Bank Governor Dr Alan Bollard,
and Acting Secretary to The Treasury, Dr Peter Bushnell.
More details of the scheme are below.
OPERATIONAL DETAILS
New Zealand Deposit Guarantee Scheme
This document outlines the key characteristics of the deposit guarantee
scheme announced by the Minister of Finance this afternoon. Draft
contracts containing the full details of the guarantee will be available
on the Reserve Bank's website later this evening.
The Offer
Under the terms of the Public Finance Act, the Crown will invite
eligible institutions to enter a guarantee of their deposit liabilities.
Eligible financial institutions, will be New Zealand registered banks
and non bank deposit-taking financial institutions, who are fully
compliant with the requirements of their trust deeds.
The decision to enter a guarantee with any specific institution, whether
now or in the future, will be at the sole discretion of the Crown.
Which deposits will be covered?
For New Zealand incorporated registered banks deposits from both
residents or
non-residents, will be covered.
For non bank deposit takers and for the unincorporated branches of
overseas entities only deposits of New Zealand citizens and New Zealand
tax residents will be covered.
Deposit liabilities will be covered regardless of the currency in which
they are denominated.
Deposits and other liabilities owed to financial institutions, whether
in NZ or offshore, are explicitly excluded from this guarantee.
How long will the guarantee last?
The guarantee will be offered for a term of two years.
Fees
The government will charge a fee for any guarantee offered on amounts in
excess of $5 billion.
For covered liabilities in excess of $5 billion a fee of 10 basis points
per anum will be charged for the guarantee. The fee will be charged on
the basis of the total covered liabilities, in excess of $5 billion of
the institution.
What will trigger the exercise of the guarantee?
The Crown will make payment in the event of the liquidation of a
guaranteed financial institution, if its assets are shown to be
insufficient to meet the liabilities covered by this guarantee.
Administration
These guarantees will be offered and administered by the Treasury.
Further Information
For institutions wanting further information on their eligibility for
this guarantee please contact the Reserve Bank on: 021 682 757.
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DEPOSIT GUARANTEE SCHEME
Q & A
12 October 2008
What is a deposit guarantee scheme?
It is a facility where the Crown guarantees people who have deposits
with institutions in the scheme. It covers all retail deposits of
participating New Zealand-registered banks, and retail deposits by
locals in non-bank deposit-taking entities. This would include building
societies, credit unions and deposit-taking finance companies.
It only covers deposits and other debt securities.
What is "retail"?
Deposits by anyone other than financial institutions (eg banks and
non-bank deposit-takers themselves)
What will it cost?
The scheme will be free for institutions with total retail deposits
under $5 billion. A fee of ten basis points per annum will be charged
on total deposits above $5 billion. This means that a bank with $20
billion in retail deposits would pay $15 million in fees per annum.
There is no direct fee for individuals, but institutions will determine
if and how the costs of the scheme are passed on
What is the cost to the Crown?
This obviously depends on the degree (if any) to which it is drawn on
(like any insurance scheme). Any guarantees will be recorded as
unquantified, contingent liabilities of the Crown.
Why was the facility announced this afternoon? What precipitated it?
The government has moved today to ensure ongoing depositer confidence in
New Zealand given the international financial market turbulence. The
New Zealand banking system remains sound. This move is to give further
assurance to New Zealanders that their deposits are safe. It follows
other measures that have been undertaken by the Reserve Bank in recent
weeks to ensure the liquidity of the banking system.
Why has this been done without legislation?
Parliament is not sitting, and therefore legislation can't be
introduced. However, the Minister has powers under the Public Finance
Act to act in this way.
Does this apply to non-banks / finance companies?
Yes it does, inasmuch as they meet the criteria (above). Customers
should check with their institution to confirm whether they are going to
seek cover.
It does not apply retrospectively.
What about non-residents?
For branches of overseas banks and non-bank deposit-takers,
non-residents will not be covered.
Is this scheme comparable with the facility announced in Australia
today? What about other jurisdictions?
From what we've seen, the schemes are different - but both are aimed at
encouraging confidence
Where can I go for more information?
Individual customers should talk with their banks or non-bank
institutions.