Don't panic, we're not Cyprus, says RBNZ
"Shouldn't banks have to declare who actually has first dibs on your deposit if/when they stuff up?"Featured comment
New Zealand depositors would not, in a financial meltdown, face the sort of raid on their accounts considered in Cyprus, the Reserve Bank says.
In any meltdown, depositors could lose their money, but that has always been the case, deputy governor Grant Spencer says.
“If their bank fails, depositors have always needed to understand that deposits are not guaranteed. What OBR [Open Bank Resolution] does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk."
The suggestion, by Labour finance spokesman David Parker, that banks should be required to buy deposit insurance to cover their depositors confuses the issue, Mr Spencer says.
Deposit insurance is not a substitute for open bank resolution. It is aimed at protecting individual depositors: the OBR policy is aimed at stopping the failure of one bank contaminating other banks and the entire financial system.
"It is a separate issue altogether. The New Zealand government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure," Mr Spencer says.
“Deposit insurance is widely used in Europe, including Cyprus, but hasn’t prevented banking failures, as we saw during the global financial crisis.”
The alternative to open bank resolution is not deposit insurance but government bailout – or allowing the bank to fail, he says.