The government is making more room for finance company failures, boosting the amount taxpayers will provide to protect investors under the government's retail deposit guarantee scheme.Treasury's latest accounts, for the eight months to February, reveal a
The government is making more room for finance company failures, boosting the amount taxpayers will provide to protect investors under the government’s retail deposit guarantee scheme.
Treasury’s latest accounts, for the eight months to February, reveal a $78 million boost in the scheme’s provision to $849 million.
That’s the money available for losses considered “more likely than not” to occur and compares to $771 million in the January accounts.
Despite the increase, the amount remains $50 million below half-year forecasts.
The opt-in retail deposit guarantee scheme was set up in October 2008 to ensure ongoing investor confidence in New Zealand’s financial system, in the midst of financial market turbulence.
Participating finance companies pay fees to the Government if they hold deposits of more than $5 billion or experience significant annual growth in deposits of more than 10%.
But for other companies with deposits of less than $5 billion, the government now has provision for a net expected loss given default of $849 million, to cover future payments under the scheme after expected recoveries.
Treasury’s financial statement revealed a deficit in government spending of $1.6 billion, ahead of the $2.7 billion forecast.
The accounts follow a report from rating service company Standard & Poors yesterday, pointing to challenges for the finance company sector with susceptibility to liquidity and funding risks.
