A bank insurance system to protect depositors’ funds in the event of bank failure is put in place.
The program, first offered two years ago, will have a limit of $ 100,000 for each depositor in an approved bank – double the limit originally planned.
“We originally proposed a limit of $ 50,000 for deposit protection, but after listening to the comments it was increased to $ 100,000. This will fully protect 93% of depositors,” said Finance Minister Grant Robertson .
He said the program would start in 2023 and was part of a larger package to strengthen regulation and supervision of the financial system.
New Zealand was one of the few developed economies that did not have a deposit guarantee scheme, which has been recommended for years by the OECD and the IMF.
Although not detailed, it is likely that the program would be funded by a levy on banks to allow a build-up of funds as insurance, which may require government support initially.
The regime would apply to banks, credit unions, building societies and finance companies accepting deposits.
Other measures taken include defining the range of measures that the Reserve Bank can use to monitor subprime loans, such as loan-to-value ratios and debt-to-income measures. Right now, the RBNZ must seek government approval for every measure it might want to use.
The supervisory and enforcement powers of the RBNZ over the banking and financial sector, as well as the behavior and accountability of directors will also be strengthened.
“While New Zealand’s financial system is strong and well positioned to withstand the stress posed by Covid-19, these reforms ensure that the Reserve Bank is better equipped to protect and promote financial stability going forward,” said Robertson.
“Taken together, the recommendations will significantly strengthen the safety net of New Zealand’s financial system and contribute to a strong framework of protections for depositors. “
The RBNZ currently oversees a system called “open bank resolution,” which relies on loss sharing by all parties in the event of bank failure.
In addition, the RBNZ is continuing its plan to require banks to increase the amount of capital they hold.
The Bankers Association said the program and other changes are expected to boost depositor confidence in the industry.
Managing Director Roger Beaumont said: “Today’s announcement will give depositors an extra layer of security for their money in the unlikely event of bank failure.”
The setting of the levies to pay for the program and the location of the costs should be determined, he said.
“We support a risk-based approach to establishing levies where low-risk entities, such as banks, pay lower levies because they are less likely to call on the scheme.”
The new regime also had to be incorporated into other regulations covering the sector, such as the Reserve Bank’s decision to require banks to hold more capital in the event of future financial shocks, and the current rules that allow bank deposits to be used if a bank fails, Beaumont said.