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New Zealand's lack of deposit insurance unusual

New Zealand and Israel are the only OECD countries without deposit insurance for bank savings accounts.

Thursday, April 11th 2013, 11:46AM 5 Comments

by Susan Edmunds

The Reserve Bank is planning to implement Open Bank Resolution, which could leave account-holders facing a loss if a bank falls over.

The  scheme would mean a failed bank has to write down the value of the most pressing unsecured liabilities straight away in the event of statutory managers being called in, so service can resume the next day and allow customer transactions to keep flowing.

Reserve Bank head of prudential supervision Toby  Fiennes said a Government could still decide to bail out a bank or let it go into liquidation.

The Bank claims deposit insurance increases the likelihood of bank failure and encourages riskier behaviour.

But David Tripe, of Massey University’s centre for banking studies, said a deposit insurance system was fairer because it protected small deposit holders. 

He said  the kind of risky behaviour the bank would worry about was among people who moved large sums of money around, not small savers.

In Australia, depositors’ savings are protected up to $250,000.

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Comments from our readers

On 11 April 2013 at 8:17 pm Nick said:
And who pays for this, again? Deposit insurance is not 'free' and the fact that other countries have gone down, with the exception of Israel, a silly path does not mean that we should. These measures have generally been enacted under terrible financial circumstances, which mercifully we have avoided with our banks.
On 18 April 2013 at 11:01 am Andrew said:
There is a harsh reality that the people of the world forgot that Banks have their money and banks invest their money not the banks money.
There are very good and valid reasons why class action suits are commencing worldwide against banks for charging fees for storing people's money because without the populations money there would be no banks. The profit made by banks rides off the back of other peoples money.

The Bank needs to ensure people's money is safe not the people. They got people to stop putting money under mattresses or in a personal safe guaranteeing them safety on their money and a fixed interest rate so the bank could invest someone else's money.

The guarantee of safety is the bank's responsibility not the people that trust the banks to look after their money.
The bank makes a profit by investment of money that does not belong to them.
If they make a loss then maybe they need better managers. If you add the entire population of New Zealand or any country for that matter together, then work out what the bank makes from external and market investments; if they cannot make a profit then they need to fire the people in charge and get people that can.
They can no longer validate charging people for letting them look after their money and invest it.
Not before time.

The banks need to pay the insurance and guarantee New Zealanders and all people worldwide that put their money into the bank a form of solid security on their hard earned income.
On 19 April 2013 at 12:51 pm Mike N said:
The RBNZ and the government is ignoring political reality on this one. Who amongst us really believes that politicans would let the mum & dad depositors of a major bank take the loss? Take AMI and Sth Canterbury as examples. The BNZ went bankrupt in 1990 and was bailed out. It does and will happen.
Its far more sensible to set up a formal scheme which puts aside a small % of interest payments into a fund to cover it than have the taxpayer do it, esp since it would probably happen during a financial crisis when the govt is cash constrained.
On 20 June 2013 at 3:47 pm Doug Davidson said:
The very first way to protect company or any other trading entity is to have sufficient capital to trade in such a way as to be able to
pay your debts, creditors, as they fall due. Banks have carried tier one capital approximately 10 percent of the problem with this is off balance sheet liabilities. NZ banks carry billions dollars of off balance sheet liabilities. This dilutes there ratios dramaticly. Sometimes
also they are allowed lower capital ratios for housing loans.
Banks should not be allowed to pay dividends if on balance date there ratio over all assets are below a set level. My opinion is that this should be at least 15 percent.
On 12 June 2014 at 12:52 pm Hot property said:
I remember when I lived in the US before their latest housing crisis all of us put our money in the 'Savings and Loan' banks which had Federal Deposit Insurance. Human nature being what it is, all the managers were trying to earn higher salaries by attracting new depositors using higher interest rates obtained from making riskier and riskier loans. In the end they all went bust including mine but so what? The US can afford to print billions, NZ can't. What I can't understand is why the NZ govt paid no attention to history and extended Canterbury Finance's deposit insurance !!!!!!!!! The writing was on the wall -Heads should have fallen.

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