Further details of deposit guarantee scheme announced

Treasury and the Reserve Bank have this afternoon released further
details of the opt-in retail deposit guarantee scheme announced by the
Minister of Finance on 12 October.

The details include information about tighter requirements on non-bank
deposit takers; a fee for finance companies that are rated below BB or
unrated; rating requirements for new entrants; coverage of non-resident
depositors with New Zealand branches of overseas banks; senior debt
requirements; and the approval process.

The scheme will cover all retail deposits of participating New
Zealand-registered banks and retail deposits by locals in non-bank
deposit-taking entities, and is designed to give assurance to New
Zealand depositors in the current uncertain international financial
market conditions.

Reserve Bank Governor Dr Alan Bollard and Acting Secretary to The
Treasury Dr Peter Bushnell noted today that "as the retail deposit
guarantee scheme is being implemented, a number of policy issues are
arising that are being addressed".

Decisions have now been made to:

* Tighten the requirements upon non-bank deposit takers

The deed for non-bank deposit-takers will be tailored to contain tighter
controls including:

- limiting potential for stripping out funds through, for example,
dividends, or payments to related parties;
- increasing reporting requirements and allowing the Crown to
appoint an inspector; and
- enabling an assessment of whether business behaviour is taking
place that would then result in breach of the terms of the guarantee

In addition there will be personal undertakings required from directors.

* Introduce a fee for non-rated finance companies

A fee of 300 basis points per annum will be charged monthly to finance
companies that are rated below BB or are unrated (on the cumulative
growth in the book since 12 October 2008).

* Require all new entrants to the scheme to be rated BBB- or
better

New entrant requirements (eg companies seeking to come into the scheme
that were not in existence or ineligible on 12 October 2008) must be
BBB- rated or better in order to be eligible to apply to join the
scheme.

* Cover non-resident depositors in New Zealand branches of
overseas banks as at 12 October 2008

Non-resident deposits in New Zealand branches of overseas banks will be
brought into guarantee coverage.

However, the guarantee is limited to the total amount of the
non-resident deposit base as at 12 October 2008 and up to a further 10
percent per year of that deposit value (to cover for interest and any
variation in deposit level).

* Ensure that deposits with building societies and credit unions
are covered

As building societies and credit unions issue subordinated debt the deed
will ensure such deposits are covered by the guarantee. Subordinated
debt issued by other entities will not be covered.

* Include collective investment schemes (with certain conditions)

As announced earlier in the week, it has also been decided to include,
with certain conditions, collective investment schemes (CIS) that invest
solely in government debt or institutions subject to a government
guarantee and in debt of non-bank guaranteed institutions to the level
held on 12 October 2008.

ASSESSMENT AND APPROVAL PROCESS:

Specimen deeds for banks (including branches) and non-banks will be made
available via the Treasury website later tonight (Wednesday 15 October).

The specimen deed for collective investment schemes will be made
available late tomorrow.

Dr Bushnell said: "While no applications have been approved yet, once
the final deeds are made available (tonight and tomorrow), the Treasury
will work quickly to ensure that applications are processed and
approvals made public. We expect this process to take a matter of
days."