New Zealand introduces deposit guarantee scheme

by Richard Kilner

Story link: New Zealand introduces deposit guarantee scheme

The Finance Minister of New Zealand, Michael Cullen, has revealed that the government is to introduce an opt-in retail deposit guarantee scheme, under the provisions of the Public Finance Act.

The scheme would cover banks registered in New Zealand, as well as other retail deposit-taking firms, such as credit unions and building societies.

However, related party liabilities would not be covered under the scheme.

Under the plan, deposit-taking firms would opt in to a bilateral contract between the institution and the Crown.

For those firms with deposits under $5bn, the scheme will be free, but a fee of 10 basis points per year would be charged for total deposits exceeding the $5bn threshold.

The scheme will initially be available for a period of two years, and it will be reviewed in the coming months as the global financial turmoil progresses.

It has been developed as a response to the growing unease that has accompanied the worldwide difficulties faced in the financial sector, with poor credit conditions affecting much of the world.

Cullen has explained that it is designed to lend assurance to anxious New Zealand depositors.