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 commentNew 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.
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Comments and questions34
Thanks! Now, do something about housing prices!!
and xero shares as well, I'd like to buy at $4....
OBR would ensure that other banks would be contaminated by a bank run. If a bank failed and people saw the OBR in action (i.e., with, say, 20% of depositors' funds being confiscated) they would immediately rush to pull their money out of other banks to prevent the same thing happening to them.
Nice read of the situation. I doubt even the central bankers in eurozone would have comtemplated taxing deposits 10 years ago. Likewise with OBR, who knows what will arise in years to come? But where to open an account to transfer cash? Switzerland? Bahamas? Rarotonga?
Open an account in Aust. All accounts have $250,000 deposit insurance
This is why people put money in US treasuries, gold and Swiss accounts. Don't ever set an investment, any investment, and then just forget. People also forget that time is a risk. On-call has a very real advantage over anything else a bank offers when the sh*t hits the fan!
What about covered bonds?
Shouldn't banks have to declare who actually has first dibs on your deposit if/when they stuff up? I mean the banks are making these huge profits, isn't it time for RBNZ and govt. to stick up for the little guy? ... like before the pitchforks come out.
NZ's banking structure is the same as Cyprus. Human emotions are the same worldwide. NZ is not Cyprus - until it is, of course. This proposal just erodes depositors' confidence. And confidence is the foundation of the system.
Dead right and together with trust, the Cyprus stuff-up is probably the first act of a loss of both in politicians and bankers.
If they get away with it in Cyprus, it won't happen here - yeah, right.
I have heard just about enough from Key and the RBNZ. We are the only major country in the OECD with no bank deposit insurance. It is a case of penny pinching again. Aust covers the first $250,000 in personal accounts ... what's our problem? Oh, that's right, we can't match Aust.
But I decide where my money will be deposited and if after July 1 there is no deposit insurance in place, then I will deposit outside NZ, simple!
'Penny pinching'? You appear to be under the misapprehension that deposit insurance is a free lunch. It is not. Requiring banks to have it would simply increase the costs of banking - as is the case in Oz.
Direct costs aside, the main problem with deposit insurance is that it increases the probability of bank failure - moral hazard and all that.
So go ahead and desposit your money outside NZ. One thing that'll do is expose you to currency risk. And there's no free insurance against that either...
They would say that, wouldn't they?
In that case, can the RBNZ explain why deposit insurance of $250,000 is in place in Australia for the same Australian Banks that are in NZ.
Are they seriously suggesting our banks & economy are stronger than in Australia.
This makes NO sense & is unacceptable.
Just hope Shearer and Norman never get the Treasury benches - Russel would be rubbing his hands together with glee with just the mere thought of being able to raid people's bank accounts to make his communist plans come to life!
That's more or less what Milosovic and his Communist Party comrades did in Serbia. Raided local bank accounts and took all the Deutschmarks that people had used for their savings and replaced them with the nearly worthless local currency at the much inflated official exchange rate.
...we are Greece instead!
Any bank in NZ would be smart to introduce a Deposit insurance scheme. They would get all of my money.
You're now insured! Believe me? How do they do that, anon?
Perhaps someone could explain to me how these are the same - Cyprus is a govt planning to one-off tax all bank balances x% of the balance, whereas the NZ issue is a case of a failed bank losing the $ of unsecured creditors (being depositors). I fail to see how they're the same? (and the deposit insurance issue is an entirely diff issue, so please don't go there).
You are obviously a govt spindoctor operating form the Beehive basement. You are not fooling any one, Mr Key.
Far from it you goose - I'm merely (unlike you) thinking logically. Perhaps you should grow up & learn to read the facts not make it up as you want to see it.
Completely agree. Labour clearly are confusing the issues as they don't understand. What they are suggesting is akin to an arsonist taking an insurance policy out on your house.
More concerning is the fact that the EU's suggestions completely ignore the well-established security chain. Bondholders and equity holders get tee'd up first, always. Taxing deposit holders is blatent theft, showing how desperate they are to keep this disasterous Euro project alive. Watch the capital flight once banks in Cyprus reopen, if they ever do.
They are the same as far as moral hazard goes. If banks and Govts know they will be bailed out/in again, then they don't have to live with the consequences of poor business practice. Also, when you break the trust of depositers there is a risk people will withdraw money from the bank, leaving it less liquid and undercapitalised. So they are different in the respect that Cyprus is happening and NZ probably won't, but the perceived risk to depositors and banks are the same. The timing of this proposal is very unfortunate.
What drivel - the risk isn't the same as they are two entirely different circumstances. The outcome (a loss to the depositor) may be the same but the causes are entirely different.
Before you call it drivel, I suggest you do some research. I guess some people can never see the forest for the trees. You are rude and retarded.
Jim Sinclair’s commentary, http://www.jsmineset.com/
"This New Zealand item was planned before Cyprus was voted down. Such a move by New Zealand is extremely high risk.
Confidence that no depositor will suffer is the glue that has held this system together. Break that confidence, and you break the system."
This man is an authority. You, sir, are uniformed and ignorant on this matter. (don't try to tell me this source isn't more credible than you, read his bio. You have nothing)
Read what he says:
"The alternative to open bank resolution is not deposit insurance but government bailout – or allowing the bank to fail, he says."
A government bailout is NOT allowing a bank to fail, it is a government bailout.
Failed banks must be left to die.
Gees, I feel sorry for you people worrying about your deposits.
A bank will never fail in NZ .... oops, I just remembered, BNZ 1987!
You people are so gullible ... stock market, finance companies, but you still trust the govt .... amazing !
In other words, there has been NO public consultation & confushion reigns.The option is simple, deposit insurance like every other OECD country. Or is our govt. smarter than EVERY other OECD govt. Incredible !
I don' believe in deposit insurance. If a bank fails, they should be allowed to, as the Iceland government did, and they started to come out of the hole earlier than the likes of Greece and Spain, which are still wallowing.
And if there is a bank guarantee of deposits, why can't shareholders be insured too? They take risks.
Fortunately, the High St NZ banls are owned by the AU big 4.
I thought the govt wanted to discourage further investment in the housing market. This move will result in large account holders doing exactly that.
There has never been incentives, tax or otherwise, to encourage people to save money in banks.