The comment stream

Recent comments

Reader poll

Join the Interest community to be a registered commenter so you can:
- Edit your comments
- Avoid the CAPTCHA
- Vote on comments
Register Here

Already registered? log back in here ..

Forgotten your password? No problem! Click here

Opinion: This scheme has 2 big holes to drive trucks through

Posted in News

I called for a bank deposit insurance scheme in March and again last week. I should have been careful what I wished for. We now have a scheme that Rod Petricevic could (in theory) use to launch new government-guaranteed finance company to repurchase loans from the receivers for Bridgecorp. It could also be used by Doug Somers-Edgar to fire up the Money Managers empire again. Allan Hawkins could start raising money for his Budget Loans finance company and promise that it was backed by the government. Yet it may do nothing to solve the fundamental problem facing our major banks -- a shortage of wholesale funding between banks. Our banking system could still freeze up in the same way that the European and US systems have and this plan does not stop that. Let me explain.

This is a deposit guarantee scheme for all deposits by non-banks (ie people and businesses) in banks, building societies, credit unions and finance companies. Everyone taking deposits can apply and can in theory be accepted. All depositors, except other banks, can be sure their money will be guaranteed by the power of the government to tax. As long as the deposit taker hasn't breached its trust deed (ie hasn't defaulted on interest or capital payments on time) then the Reserve Bank can accept them into the scheme. Currently that clause rules out Petricevic, but not Somers-Edgar, who has only closed his finance company to new deposits rather than breached his trust deed. It would also be open to convicted fraudster Allan Hawkins, who currently does not take money from the public for his finance company. The scheme is extraordinary in its scale, breadth, depth and scope. It guarantees everything for two years, except for the deposits that banks and other financial institutions hold in each other. It was thrown together in a hurry and it is far from perfect, which is understandable. But it can be improved. Don't get me wrong. We needed something extraordinary to deal with an extraordinary situation in the Northern Hemisphere. Even the head of the International Monetary Fund has said there is a significant risk of a systemic meltdown in the banking system. Europe's governments are taking drastic action to save their system. There's a couple of huge holes and inconsistencies to be addressed or we risk a repeat of the sort of deluge into dodgy finance companies that helped get us into this mess. We also risk not dealing with the core of the problem, which is the freezing of lending between banks in the Northern Hemisphere migrating down south. Firstly the finance company truck. As I hinted at the top, there really is not much to stop Rod, Allan and Doug applying for a guarantee. Whether they'll get one is another thing. The Reserve Bank is still working out the rules. They may well include exclusions for bankrupts, alleged liars, convicted fraudsters and anyone they deem not to be "fit and proper." They should include what I call the 'fancy car' test. Anyone with a late model sports car should be excluded. But there's nothing specific to block these type of property developing Bentley coupe driving wide boys from starting up finance companies yet. Every finance company wannabe will be licking their licks. They'll be working on schemes and dreams about new developments or buying bankrupt holes in the ground as we speak. Just imgaine. They will be able to offer deposits at 10% with a government guarantee. If they're quick enough they'll be able to do their business before the two years runs out and leave an even bigger smoking hole in the ground for the government (ie the taxpayer) to clean up. Let's hope the devil in the details from the Reserve Bank closes this big hole. The second big truck sized gap in the scheme explicitly rules out bank deposits in other banks as being covered by the scheme. This effectively means inter-bank lending is not covered. Why is this important? Currently more than a third of New Zealand bank lending is funded from international wholesale markets, which means our banks have borrowed from other banks overseas. The scheme announced in Australia yesterday does provide a government guarantee for these inter-bank loans.  There is now a big risk that foreign banks will see they can be guaranteed if they pull their money out of New Zealand banks and put them into Australian banks. Much of this foreign short term wholesale lending done by New Zealand banks is done with either parent banks in Australia or one of the other three Australian banks so withdrawing it would be pointless. However, the risk is with the non-Australian foreign banks pulling their money out of New Zealand and moving it to Australia. As I write European governments are announcing a government guarantee scheme for inter-bank lending there, similar to the British government guarantee offered for such lending by British banks.   Currently the inter-bank markets within Australia and New Zealand are not frozen. They are definitely frozen in Europe and the United States. There is a risk that freeze will extend to New Zealand and Australia. When it does our Reserve Bank will have no choice but to expand the scheme to wholesale deposits too. There is another problem with the way this scheme has been developed and announced. Helen Clark took the dangerous decision to include it as the centrepiece of her election campaign launch yesterday. She also didn't inform National Leader John Key and Finance spokesman Bill English before doing it, and neither did the Reserve Bank Governor, it seems. Key and English have supported the scheme to remove the danger of a political fight endangering confidence in our system. But they are being forced to sit on their hands while Clark and Cullen display their "decisiveness" courtesy of the power of incumbency. Clark could have announced it this morning in tandem with Key and English and painted it as a 'war cabinet' style act of broad government. Instead, she chose to portray it as the act of a decisive, responsive government. Only days earlier Cullen had downplayed the idea and has actively opposed it over the years. This is policy making on the hoof dressed up as a bold plan to use the power of government for good. Playing politics with confidence in our banking system is a corrosive and dangerous thing to do. Helen should have held her breath and done the decent, statesmanlike thing. It may well come back to haunt us all.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.


What I don't get is...

What I don't get is... if everything is guaranteed.... will all the rates offered converge? I mean, why should I buy safe NZ government Kiwibonds at 6% if I can get guaranteed deposits at 10% in a finance company? I think everyone will pull their money out of government bonds, out of banks even, and into finance companies. And that just seems entirely backwards, causing the money to move to it's lowest and worst use.

Mike Dilger, A very, very

Mike Dilger,
A very, very good point. South Canterbury CEO Lachie McLeod agreed with me today when I asked if this meant finance company rates would converge. In theory all deposit rates should be the same. If the government was being fair, it would also be setting deposit rates at the same time as guaranteeing the system.

They should have said "as

They should have said "as at COB on Friday".

But it's all government money now anyway.

I believe finance companies will

I believe finance companies will still offer a slightly higher return than banks as they still have to entice people away from the banks which are easier to deal with than a finance company.

They will also be competing with PIE deposits with its large tax incentive (30% vs 39%).

Although the deposit is guaranteed, the return is not so you are still running the risk of not getting any return on your money and this should also be reflected in the finance company interest rates.

I am not a fan of Finance companies (especially in a recession) and will continue to leave my money in PIE deposits in the short term.

Cullen has overstepped the mark by guaranteeing finance companies.

So Bernard you're saying that

So Bernard you're saying that this Labour policy has even MORE holes in it than the EFA? I had thought that was a mathematical impossibility. Still I guess both will serve their political purpose, so in a sense they're watertight.

A couple of holes? More

A couple of holes?

More like Swiss cheese. Like you Bernard I was for a bank guarantee scheme to stop capital flight but this goes way over the top as you, I and almost every other correspondent on this site has discussed.

What i don't get is surely if we mere mortals can see the pitfalls from spending a couple of minutes considering, discussing and arguing the points why don't they see it and why are these questions not asked by more in the media. Did you read John Armstrong's piece in the Herald? More like a party political broadcast ignoring all the detail.

Is there still a round table anywhere? i certainly hope the RBNZ and other parties get input on the details.

The main problem will be what will be the exit strategy which doesn't involve us owning every toxic asset ever created in the last five years and the next two or more while they end up with a garage of fancy cars.

Labour is fast losing credibility with me but as it is a complex issue the headline probably grabs the votes and the detail doesn't loose any that matter to them. But please for the sake of the country they must have a broadly based think tank on forming the details or cutting it back..

Andy I agree. We hope


I agree. We hope to provide the forum for debate here.
I welcome any comments pointing out more holes in the Swiss Cheese. I know the Reserve Bank will appreciate it too. I suspect they read this stuff occasionally....
Here's hoping

I have played as safe

I have played as safe as possible with my money for years. Most of my $2mil bank deposits are in Rabo and Kiwibank with a few hundred grand spread around the Aussie banks.
I was tempted and even wrote away for the glossy brochures from five star finance etc finance companies but always kept away from them.
I think it is ridiculous that the Govt is now including finance companies in the guarantee.
I can understand banks being included.
I was about to make a large purchase in Kiwi bonds today but held off when I got the reserve bank email.
Lets hope that the criteria for finance companies to apply to be in the deposit insurance scheme cull out the shonky ones.

I'd just like to reinforce

I'd just like to reinforce what Bernard said. Don't worry about some "official" think tank telling you what to think. You will find it all on here and on other similar blogs.

Blogs like these are a forum for real debate and provide voices for those who would never be heard but have something interesting and helpful to say.

So are the bank deposit


I'm all for deposit backing

I'm all for deposit backing but this is quite an extreme version. This would pretty much take the risk out of investment into institutions and could easily cause imbalances in investment vehicles. The other thing is if its unlimited, in today's market this could push our currency up as huge amounts of money flow in from overseas?

I am sure some inventive folk are already dreaming up schemes to fleece this.

One could start their own "finance company" and invest in anything to have it backed by the government, should it flop they get there principle back and start again.

Or just open a finance

Or just open a finance co ,with 2 years guarentee ?who cares if it fails ,after all the depositors money has been lost in the casino ,it is still guarenteed OR JUST PAY BRIBES OUT OF THE MONEY TO WHOEVER FOR FAVOURS? THIS ALL SOUNDS LIKE UTOPIA?UNDER THE PROPOSED SCHEME IT COULD BE A REALITY.

This Scheme is scary ,

This Scheme is scary , it seems that by given the tick to finance companies Helen is saying that risk vs.s return need not be thought of anymore.

the falling apart of finance companies was actually teaching New Zealand lesson , that Risk should be looked out .

what I see as the worst part of this Scheme small time high risk leaders will get free cover , were safer low risk banks will end up paying the government for the scheme full well knowning that they must be in it , cause the miss fear that is running through everyday investors would mean they wouldn't get deposits no matter what there credit rating.

the government should have really talked this through and left the gun in the pocket for another day or two instead the let it rip and we the tax payer may end up buy dearly for a scheme that seems bottomless and reckless.

I have spoken up for

I have spoken up for Cullen lately...but the extent this goes creates to many loop holes, and encourages money to go where its not in the best interests of the country

We would be better off with no guarantee than this bit of rubbish , too complex and open to total abuse...
I cant believe how short sighted and stupid Cullen is on this.
At least he should have kept it simple to start...As BH suggested..THEN maybe add to it...and pick up the political brownie points
To provide blanket cover, then try to pull it back is just messy, tactically stupid...
Unless of coarse Key was known to going to get on the band wagon and do th oneupmanship and go for the blanket cover...wouldnt be surprised.

"Anyone with a late model sports car should be excluded."
That I like, it will force them to buy very expensive classic sports cars, and instead of mine depreciating in tough times, just keep appreciating up to even more ridiculous values...I recon its overvalued like proprty, about 30 to 40%

I think we should wait

I think we should wait till we see the level of finance companies etc that get 'accepted' into the guarantee. It seems that deposit rates across the board are likely to drop now and this should benefit everyone except maybe depositors.
This could be a bold move with an un-expected and worthwhile outcome as folk start spending again with less risk of a personal rainy day.

Under the current scheme Bridgecorp

Under the current scheme Bridgecorp owed less than $5 billion so they would not have paid a cent for the guarantee on their doggy loans (if they had a guarantee). Is Labour giving National a white elephant when they get into power?

There is no mechanism for the government to cancel the guarantee later on if there is bad behavior by the companies and there is no regulation offered in any way. Over here in Ireland they are putting people to represent the public interest in the banks that have the 100% guarantee. In the UK the taxpayer is buying a share in banks, so when things get better the tax payer wins!. Why not here?

Time to start writing letters to Cullen, Helen and the newspapers!

When I first heard of

When I first heard of this I thought great now my saving are safe. After a days pondering Im not so happy. Is the situation really this serious, if it is then Im worried again. It dosnt solve the solvency /liquidity problem. Its almost total state control of our finances and it could be used to force down deposit rates.The banking crisis i suspect is the beginning of a bigger crisis so looks like we are in for more Fascist state control.
I went to Church on Sunday we have a great Pastor his words. Young people's idea of saving is when you get $200 off a stereo at Harvey Norman. They have no idea there is another type.
Im considering buying gold and heading to some tropical island, doing a bit of fishing and starting again in 5 years time.

Ian Walker, "This could be

Ian Walker,

"This could be a bold move with an un-expected and worthwhile outcome as folk start spending again with less risk of a personal rainy day."

Is this not what got us in the poo in the first place? The lesson should be that we need greater awareness of risk whilst avoiding panic. This guarantee has gone so far as to eliminate risk completely .... at least until the government goes bankrupt that is.

Extending this scheme to non-bank

Extending this scheme to non-bank deposit taking institutions, particularly finance companies is just another political insurance policy to get Labour back into power after one term.

Watch the fireworks as the scheme expires in two years time, 2/3 into National's term! Hopefully enough failed finance companies can amend their trust deeds to get back their companies back and start making more dodgy loans ... then we'll teach them pesky Nat's what politics is all about!

Anyone with money in NZ

Anyone with money in NZ banks should get on a plane pronto transfer to aussie open a bank account there ,transfer your funds there ?after that there will be no need for these fears.Australia were not in election mode or buying votes ,they nutted it through .Here for a one upmanship LABOUR PANICKED?I THINK WE WILL ALL PAY A HUGE PRICE FOR THEIR SHORTSIGHTED ENDEAVOURS.

Everyone seems surprised at the

Everyone seems surprised at the inclusion of non-bank deposit taking institutions - but what I'd be keen to explore is the "why"? The inclusion is obviously deliberate - and those who wrote the policy must have a reason.

I'm guessing it's this - the reliance of our domestic economy on urban development projects - i.e. growth in the built-environment - the construction sector. We don't have a manufacturing sector to speak of. We don't have a small component/manufacturing assembly sector. We don't have an R&D/research-based sector. We don't have a software development sector, or a big mining sector etc. etc. We have an agricultural sector but that's up to its eye-balls in debt and commodity prices are falling. Clearly, if you take out the construction/building sector - then the only growth sector in our economy is the bureaucracy.

Faced with that hard reality of where the major job losses are going to come from if the construction sector slows - it makes economic sense to back the non-bank (i.e. finance companies) deposit taking institutions.

And given these smaller guys (non-banks) don't have to pay - you'd have expected the big guy bank to be moaning their heads off ..... but NO. So, they too must all be happy about the scheme.

The lot of them (banks and non-banks) like it - and so my guess is they all expect they will get back to business-as-usual - just like before.

Bernard The Government is shooting

The Government is shooting from the hip. There are more controls coming plus the buyback of the BNZ...The problem is Cullen does not know which six gun he should use.

You need to read what the rest of the world thinks of us from Business Week today;

Business Week has NZ lumped in with Pakistan, Romainia, Iceland, Hungary, Turkey and Viet I am not sure if Cullen knows this information yet, but I am certain his spin Doctors did know the yanks mixed us in with the rif raf of thje world.
Tougher times are rolling in like a tsunami.

doesnt seem that long ago

doesnt seem that long ago when the topics were borrowing money to bet against currencies and buy shares and the money to be made,now it is kiwi bonds and who to blame.if you want to make serious money you have to gamble so now most of us are taking a bath,some will be wiped out and others will lose what they can afford.if you want to sing the blues you have to pay your dues.change is opportunity.

Kate I think its more


I think its more that in this climate of fear the big banks don't want to frighten all the sheeple


as you suggest, they are

as you suggest, they are large holes, somewhat easily spotted. I'd be surprised if they were not already recognized and on the way to being addressed regardless of the rancid partisan squawking going on in a comments section.

@ Dubious et al What

@ Dubious et al

What is your problem with Finance Companies.? TThe shonky ones have gone and there are now some excellent NZ companies out there providing much needed second tier lending to small/medium busnesses , investments in plant and equipment, farming etc. WE NEED THEM! Wrightsons, MARAC, South Canterbury , General Finance for example. If their deposits had not been equally guaranteed, there would be a flight of capital from NEW ZEALAND owned Finance Companies to AUSTRALIAN OWNED banks. Through no fault of their own, kiwi finance companies would go to the wall. Do you really want that?

regardless of what the end

regardless of what the end result of the scheme to save our soles ?one would think it is a lot easier to drive a car with a steering wheel rather than put one on while the car is in motion.hope that resolves the genuine angst of thinking people .not a bunch of mushrooms.

Aucklander, I don't have a

I don't have a problem with finance companies receiving a guarantee. But the real cost of that should be reflected in the costs of that finance company. The current plan means that the AA rated big banks are paying to insure sub investment grade finance companies.
You mention the Marac, South Canterbury, PGG Wrightson etc. Only two of them have investment grade credit ratings, and even those ratings are 7 notches below the big banks. Yet this scheme means they are suddenly judged to be AAA risks. This is ludicrous.
A decent deposit insurance scheme would have forced the institutions to themselves pay for the cost of that insurance. Instead we will have the people depositing in bank deposits receiving lower returns so that people can get higher returns (for the same risk) in the finance companies.
There is a possibility of a huge flight out of banks and into finance companies because they offer higher rates yet now have the same risk.
Do you really want to see little old ladies getting 5% in a bank and subsidising the returns being paid by an Allan Hawkins finance company?

Aucklander - I'll tell you

Aucklander - I'll tell you what my problem is.

1. The finance companies engage in riskier lending, yet their deposits will be guaranteed just the same. They are not regulated in the same way that banks are and pose a much greater risk to the taxpayer. I agree completely that they provide a helpful service to the productive sectors but also disagree that there will be a huge flight away from them as a result of the deposit insurance scheme. The ones that are left standing are the ones who have proven themselves to investors as being able to pick solid investments and manage their maturities. Deposit insurance will not help these companies, only invite poorer quality 2nd tier lenders back into the market.

2. Allan Bollard has stated that he will allow some of the companies that have breached their trust deeds to apply for the scheme, if they can sort their trust deeds out. Expect companies such as Hanover and Dominion Finance to approach their debenture holders with a plan to get their deposits secured by amending their trust deeds. There will be big unavoidable losses in these companies because of the very high risk lending that went on.

Do you want the taxpayer to cover these losses?

Whoever does not get accepted

Whoever does not get accepted is as good as bankrupt! It's as simple as that. Given what has happened in the past 12 months, and what is happening now, news that a company is not included will create a mad rush for the door.

Thats my take on why.

I have a cunning plan......

I have a cunning plan......

My new finance company, "Hawkicevic Corp." is now offering 3 month term deposits at 50% (thats right you read it) - completely government guaranteed. The capital will be carefully reinvested in third party loans, who will all default in precisely 3 months. But never fear, my customers will receive their deposit + interest anyway - and I get to repurchase my porsche via my oh-so very handy blind family trust that just so happens to be a secured creditor to the aforementioned third parties....

Ahhh government intervention in the market - it warms the cockles of every scheming ratbag's soul.....

I'm just an ordinary NZer,

I'm just an ordinary NZer, with a little grasp of what is happening but in my opinion Bank deposits should be guaranteed, and the deposits in the bigger more responsible finance companies, Marac, UDC, (which have links to the main banks anyway, and Marac is going for bank status) should be partially insured up to a certain amount of deposits, ie, up to $50,000. If you want 10% in this atmosphere, fine, all power to you, but you won't be getting any more than that amount back if it goes down.We need to encourage a run TO banks, (or discourage a run away) not the other way around.

Access to the scheme must be carefully looked at for the non banks.

The lack of bi/multi partisan input into this scheme is astounding in the light of this crisis. We almost need a 'war cabinet' type of situation. We need to see a display of statesmanship which we have not had in many a long year. Helen and Cullen, you are elected by the people, FOR the people not the other way round. Cometh the hour, cometh the man/woman. It's called PUBLIC SERVICE for a reason.

Still, I think the sun is still going to rise tomorrow :o)

Hi All, Some still seriously

Hi All,
Some still seriously do not get this whole thing. We are in the midst of one of the greatest financial extortion rackets ever put together. If our institutes fail, where do you think the money is going to come from to prop them up. It is going to be by the way of more of the central bankers electronically created credit, which we have now pledged to pay back out of the future taxes of the nation and if our system still goes under we have pledged all our mortgages as colateral, so if you were the privately owned central bankers and your intentions are law of the jungle, monopolist control, what would you want our system to do right now?
I heard several small businessmen on talkback today saying that the men in black had turned up to put them into receivership today?

Dubious "The finance companies engage

Dubious "The finance companies engage in riskier lending"

My impression from the past few weeks' turmoil is that banks have equally (if not more) been involved in considerable risk taking. And what about ANZ's promotion of ING? or ASB's involvement in Blue Chip? We should be supporting our remaining New Zealand finance companies which are solid and prudent in their management. If, as will probably happen, deposit rates in the Aussie banks and Kiwi non-banks begin to merge, there will be no flight of capital from one institution to the other.

You are quite right BERNARD


Hey Iain, Yep, first call

Hey Iain,

Yep, first call to Michael Laws this morning was a guy who turned up to work and was told to go home, construction industry in Waikato if I remember.

Unlimited government guarantee is a

Unlimited government guarantee is a moral hazard. This action is no different from the Bank's action of lending 100% mortgages. Instead of banks becoming bankrupt, we will face the risk of countries becoming bankrupt. Excessive debt is a devil and we feed it by socialising the private risks and losses.

Why is this blog so

Why is this blog so full of right wing whingerss and scare mongerers? Jill- you don't feel financially safe? Why? Antipodean banks are the amongst the soundest in the world- see here . AND our bold deposit guarantee scheme is an example for the world. See here

The sky is not going to fall and Rudd and Clark know that this is a clever and calculated risk simply designed to restore confidence. As Rudd says, why should our banks be discriminated against because of badly managed foreign banks being propped up by their foreign governments.

As for Mr Key, well sorry but there was a sense of urgency needed here not platitudinous dithering.

Simone, I disagree, this is

I disagree, this is a game of blind mans bluff or poker of the highest stakes.
Don't worry about Mr Johny Key, he is laughing all the way with his central banker work mates.

The question is not how

The question is not how well banks are managed in NZ and Australia. Irresponsinle lending by banks resulted in huge overseas debt for Australia and New Zealand. Government guarantee cannot remove the bankruptcy risks but can only socialise the losses, making poor much more poorer.

Simone, You do your arguments


You do your arguments no service by bringing out the Right / Left perception issue. If anything, I'm naturally left leaning. But my view of this action, by Labour, is that is its Madness in the Extreme. I understand where NZ had to play catchup after the Irish started this snowball of deposit guarantees. But why Finance companies? And why no cost to the finance companies

I don't view this a a Bold deposit guarantee scheme. I agree with Bernard, the way this scheme is currently proposed has too many holes.

I can now take my money out of Kiwibank and ASB and stick it in some finance company for an extra return courtesy of the deposit guarantee scheme.

No limits on how much I could stick in to that Finance company. All backed by the NZ taxpayer. And the finance company doesn't even have to pay for the insurance.!!!

Sounds like a good deal for the NZ taxpayer. Yeah, Right.

Hi Simone you cant be

Hi Simone you cant be serious?or is your money in a wobbly finance co?if it is you are getting a free lunch totally.YES SIMONE THERE REALLY ARE SANTA CLAUS"S OUT THERE ,HELEN CLARK MICHAEL CULLEN NOT FORGETTING THE APOLITICAL BOLLARD????

@ Gibber Simone, You do

@ Gibber
Simone, You do your arguments no service by bringing out the Right / Left perception issue.

Sorry? Moi?
@ Andy Labour is fast losing credibility with me
@ Dubious " Watch the fireworks as the scheme expires in two years time, 2/3 into National's term!"


Many good points above. I

Many good points above. I have another - why is NZ the only country in the world (as far as I know) to extend its deposit protection scheme way beyond the ordinary meaning of deposits (it also covers "debt securities")? Clearly to prop up the finance company sector.

There's a clear distinction between a deposit and a debenture/bond/convertible bond. Are pref. shares also covered? Some pref shares are considered debt rather than equity. How about debt securities issued by a bank/finance company/credit union that are held with an institution other than those covered by the scheme (e.g. debentures held in a sharebroker's account)? What about PIEs?

Maybe there's a sharp securities lawyer out there who can advise.

We SHOULD be supporting our

We SHOULD be supporting our best NZ owned finance companies esp if we are supporting Australian owned banks.

Jill, Are you p***ed because

Jill, Are you p***ed because your money is tied up at 5% and you were too afraid to do some risk taking like the big girls?




Please lay off the all capitals, it makes comments very hard to read.

Bryan Spondre
Blog Producer

Aucklander, As a taxpayer, I'm

As a taxpayer, I'm happy to offer the guarantee but those involved in riskier lending should pay the increased cost of the guarantee. Under the current scheme that cost will be paid by the banks first and taxpayers second.

Can we avoid the personal nature of the comments above, please? We're a fine, upstanding family friendly site without too much biff. I like a robust debate but let's not get personal or abusive. It's more fun that way.

Ps Simone I almost forget

Ps Simone I almost forget to mention the RBNZ with their positions and flip flops on the guarentee deposit scheme especially on finance companies ,a copy of the KAMA SUTRA is on the way to dear old DR BOLLARD the original apolitical???just to keep his mind on the job ,perhaps he can share it with his advisors.

“Everyone taking deposits can APPLY

"Everyone taking deposits can APPLY and can IN THEORY be accepted."

Exactly- on looking at the RBNZ press release it is clear that the guarantee is not automatic "“ institutions must make an "initial" application (very rudimentary, let's hope the "proper" application has more detail) that requires approval before the guarantee is extended. Does anyone have any information/speculation on the criteria needed to meet approval? Do they even exist yet (especially for finance companies)? Will capitalisation be one of them? Evidently a list of approved/guaranteed institutions is to be posted on the RBNZ website daily. I can't find any there today even though one would expect the major institutions (trading banks) that applied yesterday would have their applications rubber stamped immediately. We really need to see some more fine print (a bit more than "there is a process to go through" - RBNZ) on this before jumping to conclusions. As for the issue of inter-bank deposits this omission is so obvious there must be reason/intention behind it.

"Does anyone have any information/speculation

"Does anyone have any information/speculation on the criteria needed to meet approval?"

We can certainly speculate that the best possible outcome from this dog's breakfast would be for the guarantee approval process to drive a level of regulation and oversight in the finance community that has previously been lacking. If the largesse of government means that such companies are going to receive identical credit ratings as the high street banks, then the least we can expect is that their transparency, reporting and capital requirements should also be similar.

"As for the issue of inter-bank deposits this omission is so obvious there must be reason/intention behind it."

A theory:- The big 5 high street banks (Westpac, BNZ, National, ANZ, ASB) already have a guarantee from the Aus government on inter-bank loans via their aus parent companies. This should be enough to keep money flowing between them and overseas banks. Are the aussie parent companies likely to leave their NZ subsidiaries floundering without funding? Probably not - and the gamble appears to be: "Why should NZ stump up for a further guarantee when we can bludge off the Aussies?" The sole NZ-owned high street bank, Kiwibank, is not particularly active in the interbank-market as its 'quaint and old-fashioned business model' relys almost exclusively on retail deposits. It would appear that as long as the money keeps flowing from Aus there are no vulnerable commercial inetrests to protect......

Also (and in a scary comparison to Iceland) - can NZ afford to guarantee the interbank loans? Does anyone know how big is that number?

Obviously a plan devised by

Obviously a plan devised by someone who knows that they won't be staying around to fully implement it or have to face the consequences.

Is it correct that the

Is it correct that the g'tee is limited to individual deposits up to $20k only?

Kiwi No. It's for everything

No. It's for everything (and their dogs...)
More details here.


Interesting reading the variety of

Interesting reading the variety of comments. Most seem fairly based except for maybe a bit of understandable 'politicing'. Sure; in a perfect world govt guarantees such as this bring only big problems down the line. However the horse has well and truly bolted; the stable door being left open by regulators asleep at the switch. The US bailout of Wall St by taking over its toxic loans has been rightly rubbished and the new plan worldwide with govts buying a stake in dodgy banks should bring about tough inhouse re-regulation. In due course these stakes will probably return a profit to govts like BNZ and Air NZ bailouts did in the past. Its hard to see what better alternatives exist in the real world.

So when is there going

So when is there going to be an announcement on government controls on deposit rates?

Dosser Excellent point! This is

Excellent point! This is the inevitable result when applying such a blanket guarantee to such a wide variety of term deposits that range from very risky to risk free. The blunt instrument eventually requires price controls to keep it fair...

I see the Aus government

I see the Aus government has now extended the first home buyers grant to 21,000 to try and inflate a dead market that NEEDS to crash. Rudd has confirmed himself as a complete idiot.

Hi all dont dream its

Hi all dont dream its over.I just heard the elongated CULLEN saying on the deposit guarentee scheme that there were lots of things to be worked on or worked out .My my i said that it was policy on the hoof .Clark on her haste to launch her election campaign scheme has mislaid the nation AGAIN or is mislaid another name foe TRUST.jUST LIKE ANOTHER POLITICIAN WHO HELD UP A NO SIGN.

Helen HAD to announce the

Helen HAD to announce the scheme. Otherwise NZ would have been alone in the Western world without a deposit guarantee policy. There would have been a flight of capital. And, yes, there is still a lot of detail to work through but the government and Reserve Bank were working under urgency. These are extraordinary times.

just to reiterate again about

just to reiterate again about deposit policy on the hoof .Labour mislaid the nation on what the deposit scheme covered .Its now been learned that the Aussies scheme dosnt cover finance companies go figure.