Government signals deposit protection regime to 'increase confidence in banks'

The Government has signalled the introduction of a "deposit protection regime" to "increase public confidence in banks".

New Zealand would join the rest of the OECD in having a bank deposit guarantee regime – protecting Kiwis' deposits should a bank fail. It is yet to be decided if it will be backed financially by the Government. 

Final decisions on the full details of a deposit protection regime and strengthened accountability standards will be announced in early 2020.

Finance Minister Grant Robertson said Cabinet signed off on the decision on Monday. He said it's part of Phase 2 of the Review of the Reserve Bank Act which was promised to New Zealand First in its coalition agreement with Labour.

"Now is the right time to check we have the tools to make sure banks meet their obligations to New Zealanders, and the powers to enforce them," Robertson said.

The scheme would protect the deposits Kiwis have with banks, should their bank fail. There is currently no guarantee in New Zealand that should a bank fail, the Government would bail it out.

"New Zealand has been an outlier for many years in that we don't have a formal deposit protection regime to support Kiwis if a bank were to fall over," Robertson said.

"Our banks are safe and sound. However, the OECD and IMF have said that our banking system might be more vulnerable in a crisis because we don't have a deposit protection regime.

"A deposit protection regime will increase public confidence in the banks."

He said the Government is proposing a limit between $30,000 and $50,000 for the deposit protection regime, which would cover 90 percent of individual bank deposits in the country.

The Government is also looking at whether the Reserve Bank's supervisory regime is strong enough to hold banks and their executives to account.

Robertson said adopting elements of overseas frameworks is being considered, which would increase the responsibilities and accountabilities of senior executives for the actions of banks and licensed deposit-takers.

He pointed to Australia's Bank Executive Accountability Regime as an example of framework that makes individual decision-makers at banks responsible if things go wrong that they're responsible for.

"These regimes go a step further than New Zealand's current Director Attestation Regime for banks, by also holding senior managers to account for the prudent management of their bank within their area of responsibility."