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The Finance Minister says finalising the design of a deposit insurance scheme is a priority, but there's no plan for it to be set up before 2023

The Finance Minister says finalising the design of a deposit insurance scheme is a priority, but there's no plan for it to be set up before 2023

Finance Minister Grant Robertson sees no urgency in deploying a deposit insurance scheme, even though finalising the design of a scheme remains a priority.  

Talking to interest.co.nz, he gave no indication the scheme would be up and running in full before 2023, as per the plan formed before the COVID-19 pandemic.

COVID-19 has seen the Government push pause on most of its regulatory reviews - including the second phase of the Reserve Bank Act review, through which a deposit insurance scheme is being designed.

The deadline of the third and final round of consultation was last month extended by six months to October 23.

However Robertson said Treasury and Reserve Bank (RBNZ) officials are still working on the scheme. It’s the only part of the Reserve Bank Act review that’s still going.

It isn’t being fast-tracked, but it has “more attention” being put on it, Robertson said.

“We want to be able to move forward on it as quickly as possible. I don’t feel a sense of urgency about deploying a scheme like that because all the information I have is that our banking system remains very stable.”

Cabinet in June 2019 made an “in-principle” decision to introduce a deposit insurance scheme. Robertson in December 2019 announced the scheme would have a $50,000 limit.

This means someone with a deposit at a bank or other institution covered by the scheme will get no more than $50,000 back should that institution collapse. A person with their money spread across a number of institutions that all collapse, will get a maximum of $50,000 back from each institution.

Robertson said the COVID-19 crisis isn’t changing the way the scheme is being designed.

The idea is still for banks to pay levies, or premiums if you like, for the insurance scheme.

Asked whether consideration was being given to the possibility of taxpayers funding more of the scheme, should it need to be set-up urgently, Robertson said: “If it did need to be deployed more quickly, we may need to look at another way of its initial financing.

“There are options there - the Crown would have a role potentially, yes, but equally an [upfront] fee could be charged [to institutions]…

“Those sort of thoughts around how you might fund it if you had to bring it on board more quickly are ones that we are considering.  

“Ultimately we want to still design the same kind of scheme that we had proposed. If there needed to be an interim funding arrangement, it would be one that would lead us towards the same insurance-based model we were looking at.

“There is time here for us to get the design work underway.”

It’s yet to be decided which products will be covered, how the insurance should be funded, who should administer the scheme and what role the insurer will have. The proposal is for the scheme to cover transactional accounts, on-call savings accounts, term deposits, PIE funds provided they're invested in eligible products, and redeemable shares offered by financial cooperatives.

The proposal is also for wholesale depositors (IE large/institutional depositors) to be included in the scheme, but foreign currency deposits, deposits held by related parties, and interbank deposits to be excluded. 

Resident households (individuals, family trusts and estates) alone have $184.5 billion of deposits in New Zealand-registered banks. 

A $50,000 limit will cover 40% of deposits by value and 90% of individual deposit accounts (indicating the vast majority of deposits are worth less than $50,000). 

For more on deposit insurance, see these stories interest.co.nz has previously published.

The video attached to this story comes from a longer interview with Robertson. Stay tuned for the full interview.

We welcome your comments below. If you are not already registered, please register to comment.

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.

86 Comments

I drove past an ATM strapped to the wall of a BNZ branch this morning, and there was a good queue waiting to get cash out. ( What for? Who takes it at the moment?).
But can you imagine how long that line would be if Roberston announces a Deposit Guarantee today? ( "Why? Are the banks in trouble? Quick....get in that queue!")
A deposit guarantee is pointless; it's a physiological crutch and only guarantees one thing - that it will raise revenue. Any of the Big banks will not fail, as such, they'll just get new stationery ordered.

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We are really in the middle of a crisis, and I dont blame anyone taking their money out of the bank

Kiwis know how vulnerable the Banking system is , we have been made aware of this since 2008 , and because the whole thing is hitched to Australia is even more concerning , we really dont have a clue whats going on over there .

I also dont understand how prices of fresh produce are going UP when we are discarding and ploughing- in food that would normally be delivered to restaurants , hotels and take-away joints ?

The whole thing is just an horrendous mess

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Yes, the whole thing is just an horrendous mess.
But if we can take any solace from the way 'they' have been addressing The Mess it's that if push-comes-to-shove with ANY of our major banks; probably all the way down to Heartland Bank, Bonds will be issued; the RBNZ will buy them and the funds used by Treasury to recapitalise any bank in trouble, to protect depositor funds.
To do otherwise would turn an horrendous mess into community violence.

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I agree

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Exactly right.

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Did that happen after they deployed the CG during that GFC ? I don't think so, and I think it had the opposite effect. I recall the government at the time saying that they had noticed that there have been higher than normal withdrawals which was one thing that led to them deploying it under urgency back then.
Yes a DG is largely psychological, as savers don't want to, and they shouldn't lose a cent, if a bank fails . But that is the same situation with shares, where just a hint of panic can cause shares to plunge in value.

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Credit card cash advance.

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bw,

So, if it's pointless, why has every other country gone down that path. Are they all wrong? If so why?

I certainly don't believe it' pointless and should have been in place years ago. Few depositors are in any position to assess the financial stability of a bank. Don't tell me that their is an on-line Dashboard. I have followed its progress sine before its inception having made a short submission and it's quite useless. Consider this quote from the Government; Deposit insurance means that protected depositors do not need to invest time to monitor the riskiness of their deposit taking institution, which is a difficult task even for sophisticated creditors hat have large amounts of money at stake."

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Correct as all their reporting models have been found to be wanting, bit like wearing of masks, rest ot world wearing masks, but we know better. I believe that we don't wear masks because we don't have enough masks, and we don't have a DG because we don't believe we can honour it, we.have OBR instead.

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I disagree bw. An unconditional government guarantee of 50K is the only thing that would prevent a bank run in a crisis. Even then it isn't sufficient because there's no clarity around whether the OBR comes before or after a government depositor bailout, and the prudent person would assume the worst, ie OBR coming before. The RBNZ bank stability tool is beautiful but useless in my opinion because (a) it's updated quarterly, (b) toxic liabilities are often held off balance sheet (c) previous bank insolvencies show that balance sheets are usually manipulated to give the impression that all's well when it isn't. Also, we know from history that bank insolvencies come at lightning speed out of nowhere.

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Agree fatty pat. The isssue for depositors is what to do once you withdraw? Cash is on the verge of being extinguished by both the reserve bank (trusted advisors - yea NAA) and soon governments to fully realise tax on taxable income. Think of the messaging during this crisis. The undertones of 'no cash' because it's just dirty and a vector for transmission. Oh really? ban people touching fruit and veg with their hands then!

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The queue at the ATM would mainly be those wanting to buy drugs, as drug dealers would obviously require payment by banknotes.

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ಠ╭╮ಠ

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It'll likely be all over by then

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Hopeless, I wouldn't be surprised if everyone moves their savings in to other asset vehicles (Though not property we all know that's likely to be a sliding market). 乁( ͡ಠ ʖ̯ ͡ಠ)ㄏ

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Or even to overseas bank accounts in countries with adequate deposit insurance schemes for foreign depositors, like the US.

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Exactly right. And, the lower the interest rates in NZ, the bigger the temptation to move funds overseas, where there is a decent deposit guarantee.

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Property may have some bargains though.

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There appears to be a ton flowing into shares via the beginner apps (Sharies, Investnow, Hatch, Stake) at the moment.

A lot appears to be previous TDs and a means to stash the cash. Everyone is playing the Pokies market. Something about a shoeshine boy springs to mind.

I hope they can afford to lose it. In a month or two the share market will feel the full force of the unemployment we have just unleashed.

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Aussie banks are all safe. Remember those who said this. Soon it will be revealed otherwise, despite Fed swap lines that pop do not understand

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Considering moving substantially more cash overseas because of this, if the exchange rate improves a bit (which it may not). Is that what they want by not fast-tracking this?

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NZD is falling off a cliff. Slightly predictable when the economy is shut down and other economies are not.

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I don’t think that’s the main reason. There has predictably been general flight to the USD, and increasingly gold. Aus dollar has dropped too. The NZ govt also wants NZ exports to be cheap to buy. I bought a lot of US dollars last year, as the share markets seemed way too elevated and NZ property at crazy values. Seemed inevitable there’d be a catalyst to turns things upside down. Wish I had done more of course.

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Me too. I invested in un-hedged, US dollar-denominated instruments (mostly bonds). I earned quite nicely out of it, but I do hugely regret not investing more in it.

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Should FHB be worried if their (larger than 50k) house deposit is sitting in cash?

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No.

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Reason?

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Mine above; third down, 2:27 pm...and...
"Consumer house-buying sentiment drops into bottomless pit"
https://www.macrobusiness.com.au/2020/04/consumer-house-buying-sentimen…

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They should be worried.. government blah blah.. planning...blah blah...deposit risk....blah blah...2023

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Almost certainly YES. The OBR will be triggered in a banking crisis and you could lose almost all of it.

Although if it came to that, I would also expect severe societal unrest, probably a revolution.

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What does OBR stand for? OPEN bank resolution.
It's a process put in place to sort out a struggling bank - find another, bigger bank to take it on.
There's isn't going to be a BIG bank failure here, or in Australia ( what happened the last time? St. Geroge and Bankwest were both 'merged' with Westpac. Before than State Savings Banks of Victoria & South Australia were 'merged' ( bought for A$1 ) with Commonwealth Bank of Australia - ASB's parent. None of the Big 4 - our banks' parents - would be allowed to fail in Australia. The banking system would collapse, and neither you, me or Blind Freddy would live for more than 4 weeks, so it wouldn't matter anyway!.

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Um... OK. Maybe you should read the law? https://www.rbnz.govt.nz/regulation-and-supervision/banks/open-bank-res…

"Open Bank Resolution (OBR) is a long-standing Reserve Bank policy aimed at allowing a distressed bank to be kept open for business, while placing the cost of a bank failure primarily on the bank’s shareholders and creditors, rather than the taxpayer."

Depositors are creditors. The benign example they gave is that depositors lose 80% of their funds.

If it would never happen, why make a law to cover the eventuality?

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Blobbles, a couple of things: 1. What you quoted is not the law. The only law that can empower OBR is the RBNZ Act 1989 and the only way that a depositor can actually lose any deposits from OBR is if the failed bank is put into liquidation. 2. Even the RBNZ notes that nothing happens under OBR unless and until the Minister of Finance places the failed bank into statutory management. Now if there's a deposit guarantee or insurance scheme in place, that will be a legal undertaking from the government, and it will have to be honoured. With our without OBR, a deposit guarantee or insurance means that depositors will be protected up the the limit of that guarantee or insurance. That's simply the whole point of it.

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One Big Ruckus.

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Well most would have just seen their Kiwisavers drop considerably, and it only gets paid into trust funds with your solicitor, not into your account. So FHBs are already on the back foot and the ones who have recently bought for the sake of having shelter and the chance to start a family are facing negative equity.

If FHBs or young people mattered at any point then houses tripling in price would never have been allowed to happen in the first place.

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How is it that petrol in Aussie is now UNDER $1 A LITRE and ours is still over $2 ?

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Just wait to see what it is when the refinery has gone, $5 perhaps?

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Oh, don't ya know, we are the land of the long white ripoff. Oh well, at least we have nice scenery.

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You still driving? I thought that Julie Anne Genter made it quiet clear that using fossil fuels was the moral equivalent of bashing baby seals to death with a blunt instrument

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For anyone interested - this market rally we have going on at the moment; the one where those who gloat and say "I told you so! The market's going higher than when we went into Corvid19" I'll just say that it isn't the First drop in markets that does all the damage - it's the 'unexpected' Second one.

It was in 1929: https://tinyurl.com/y8po65yo
It was in 1987: https://tinyurl.com/ybmudq6h
And it was in 2009: https://tinyurl.com/ybldf7ga

2020? Something about history and rhyming, I suspect....

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@bw ...........its called a "short-market rally" or bear-market rally

There are many reasons for it ............but in short its caused by "short -seller"buyers entering the market to buy shares to cover the shares they have short - sold , and dont have the paper to cover the sales .

Basically its a bit of an enigma to the layperson , who think things are back on track

Its not a place to tread , and it is usually followed by another fall , often much bigger than the first drop

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Which bank is least likely to collapse in the interim? Would Kiwibank be deemed "too kiwi to fail" and so get backing if needed?

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I think that because KIWIBANK is owned by the NZ government , its really the only bank the Government has any obligation to .

I need to understand if say ANZ collapses in Aussie , what happens here ?

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What happens is the ANZ NZ will be in the poo too. The difference is that Australia has substantial deposit insurance. The NZ bail-in/depositor haircut policy is laid out on the RBNZ website, in the unlikely event...

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What percentage does the wording 'unlikely' mean? This is apparently a once in one hundred year event.

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If ANZ walked away from their subsidiary in New Zealand, what do you think their remaining credibility would be in a World that lends on credit rating?
Zero. They wouldn't be able to raise a bean, and so the Aussie parent would also fail. That's' why it won't happen.
But let's just say - they took the chance; walked away from ANZ NZ.
That's what the RBNZ is for.
It would take on the remnant of ANZ NZ- pretty much like the Bank of England did with Northern Rock and Royal Bank of Scotland.
The Big Banks here are going nowhere - but, they will become more cautious with what they lend and to whom!
(Deutsche Bank in Germany is a good case in point. Everyone knows, they are bankrupt; dead. But they also know that the Bundesbank - the German Central bank - is behind them and that no matter what, Deutsche will be saved. It may no longer be called Deutsche Bank, but its liabilities ( depositor funds; interbank loans payable etc) will be repaid.

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I am withdrawing all my money. I am not prepared to lose everything as a result of John Key's self serving decisions. I will have to keep it stored at home which is scary but its safer here than in a dodgy bank.

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What about buying kiwibonds? Are they safer than the banks?

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Yes, they are direct government risk. Minimum term is six months so ideally have six months expenses in cash as well.

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Yes, the minimum term for KiwiBonds is six months but you can break any portion of your deposit with seven working days' notice. You pay a penalty of losing 2% interest or simply getting no interest on the amount you withdraw, which hardly matters when the current KiwiBond interest rate is 0.5%. (It's usually set at the OCR so I'm not sure why 0.5% is currently being offered.)
The fact you can take out all, or part of your deposit, with a week's notice, makes them very flexible... and much more flexible than a bank term deposit, which I believe requires 30 days' notice to withdraw (and you can't retire a portion of it).

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Thanks. Very helpful. Right now the objective is wealth preservation not income and any deflation is a bonus. Then switch into real assets for the inflation leg e.g. a second property

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Hope so, that's what I've just done with some spare cash. I don't care about the rate of return, as long as it's not -ve, just want something easier to look after than a large wad of notes buried in the garden. Still have some in the bank, just adding a bit more diversity to cash holdings.

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And....if tomorrow the RBNZ "does an India!" - says "On 1st May 2020 we will issue new currency notes. All cash not redeposited into bank accounts by 15th May 2020 will no longer be Legal Tender, and be worthless" what will you do?

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I will be well and truly up the creek but what other options are there? Jacindas ruined the NZD, Gold and USD's too high already, property is about to drop 60% as is NZX, there is nowhere safe. It is genuinely worrying. At least JK's ok...... grrrrrrrrrrr!!!!

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I do not advise under the matress with all your money. Some (say a few thousand) is sensible.

"Gold is already too high" doesn't make too much sense, the sky is the limit for gold the way money is being printed. And supply might run down soon too... in the very least, it is likely to retain it's buying power.

OBR was rushed through parliament from memory in 2014. DonKey did a real number on NZ, openly admitting that their entire economic growth strategy was immigration and selling more and more milk to China. He knew exactly when to take his un-taxed capital gains, sell to a foreigner and get the hell out.

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Just to clarify, nothing about OBR has gone through Parliament. OBR relies entirely on utilising the old 1989 RBNZ Act - essentially statutory management and the ability of the RBNZ to direct the statutory manager.

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Won't happen, just like the Aussie banks won't fail and OBR won't be invoked.. time will tell though. Are you a banker bw?

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Thank you Jenée for asking these questions. The govt and RBNZ need to continue to be questioned on this by journalists. I don’t think he gave adequate reasoning not to fast-track the scheme now.

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In late Feb I called ASB to inform them that I'd like to make a 100k cash withdrawal. They grudgingly obliged, but it took a week to arrive at the local branch, and not without a ton of warnings and even some condescending remarks, making me feel a bit like a paranoid over-reactor. A week later, I decided to withdraw the remainder of my balance (60k), and they told me that I was now limited to 10k. Period. This was due to many other requests from customers wanting cash. The same manager had the gall to say "no one could have seen this coming" (this was just before lockdown). I figured that the current enviroment warranted interest rates of at least 10%, so why would I let the bank lend out my deposits, sans insurance, without paying me anything in return? Now the banks are voluntarily closed, despite being an 'essential business'. Seems odd. For me, it's cash, gold, bonds, and bitcoin. If house prices drop significantly (say 30-40%), then I'll probably buy a house.

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I had the same thought. It's our money, are they even allowed to refuse to give it to us?

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As I’ve said before - as soon as you put money in the bank it’s no longer yours it’s the banks.

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yes, and deposit ins would make this statement of little concern, but currently......

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Aren't we supposed to hear more today about the economic plan?

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The one that's gonna 'ensure there's no more Inequality'?

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CGT might have helped but Jacinda said No?

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Seriously, I thought they were supposed to come out with something today. Have I got that wrong?

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Would cash sitting in a Revolving Credit facility be at risk?

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FHB with my deposit in cash: Would a cash fund etf be less risky than with a bank?

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Think of Bat Soup, and hedge your bets

I hate the term ..........."ín the unlikely event "...........and smile when I get on an aircraft and hear the safety announcement ...........the truth is if an aircraft , in that unlikely event , does crash into the Tasman sea , you are unlikely to survive said "unlikely event "

So when someone says in "the unlikely event "of a a run on a Bank , it holds as much water for me as saying that " in the unlikely event" a meal of Bat Soup could cause a catastrophic virus infecting humans and killing possibly millions .

Banks have a way higher risk of collapsing than the "unlikely event "of a deadly virus coming from eating bat soup , so right now I would not bank on anything , and we need to recognize that so called "unlikely events " have a very real possibility of eventuating .

Spread your money around the 4 biggest NZ Banks , that way you are at least hedged if one goes under or has a run , and DONT EAT BAT SOUP

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The bat soup meme is gold.

But in all likelihood it leaked from their "research" lab.

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I think that only China knows where it came from.

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Seems I am not alone fretting about my money. That's a good sign to me, it tells me that should a bank run occur, or is occurring, there will be a lot of pressure on the banks to sign a temporary deposit insurance scheme like the one that was signed in during the GFC and expired in 2011.
https://www.rbnz.govt.nz/news/2008/10/deposit-guarantee-scheme-introduc…

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I just spoke to kiwibank on the phone. Nice young lady actually really helpful.

I was wanting to withdraw 50k in cash from my kiwibank account. I was told only a handful are open each wednsdsay and that a weekly limit of $1000 Per person is allowed due to cash not being the preferred choice of currency at the moment due to co id 19, her exact words.

However I can withdraw $2500 from any bank ATM machine per day in $800 lots. With the exception of credit union type machines that would charge.

So it seems only an ATM is your chance of getting cash out. I have currency in 3 different banks. This is actually an interesting situation unfolding. I too have noticed lines at ATM machines. I think more people understand the situation than we think.

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WTF...already limiting the amount that can be drawn out?

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Yes told on the phone. The claim was merchants were not wanting to accept cash so there is little demand. Yet says the limit is $1000 each per week. Because only 4 branches are open on Wednesday in Auckland. But i am guessing an announcement later in the year that cash is no longer legal tender and must be returned to be converted digitally.

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Bingo! What a play by the government to use C19 as a reason to prevent cash transactions. All in support of bank deposits and the housing market.

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I was told by kiwibank today I would need to fill out a High value withdrawal form at a branch and cash would be ordered and delivered to the branch. Usually it takes one day but with banks only being open once a week..7days.
Unfortunately my local branch is not open....there may be some essential travel required shortly.

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Some ATMs like ASB and ANZ can do $2000 at a time. Saves heaps of time and you can go through all your ATM cards to walk away with a decent size pile that won't fit into your wallet. A few weekends ago 2 of the local ASB ATMs were empty, I was worried when there was no withdrawal option.

Branches haven't had any cash for a long time. If you walk into a branch without ordering cash you'd be lucky to get $10,000 pre-virus. No point in robbing a bank, people need to stop saying it and realize banks have no cash.

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If you put the money onto your credit card, you can do an additional $2000 a day on top of your debit card withdrawal.

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There's a chance there might be more work happening around this than Grant Robertson is inferring (I'm not sure if there is). But he will be conscious of not causing any unnecessary panic around the matter.

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Yes it does appear so. In the house, Simon Bridges does appear to have let this out of the bag prematurely. But surprised the media didn't pick this up. In his speech he said

"Last week we stood here and said lift the cap on job support. To its credit the Government has. We called for bank guarantees and they are now being put in place. And I acknowledge the difficulty of being a Finance Minister today anywhere in the world including in this little country, Mr Robertson. Now we must ensure that on the things we agree on we are all. "

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Look back the past 12 months, when those leaders hinted 'how important' it is, they even mentioned the April 2020 for 30K-50K - then came the bug, the whole tune changed suddenly, defer/not important until 2023. Not much different as when Orr stated to the Nation to; spend, spend, spend - Kiwis, if your capital/funds is considered not worth it here, as compare to be on the banks loan/borrow books - you know what to do next.

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If Grant doesn't watch his diet he will be G Brownlee before too long

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I'm confused.
3 weeks ago Simon Bridges gave a speech in the house about the state of emergency, and in that speech he appears to mention the Bank Guarantee that is being put in place. As the media missed this in this speech, or is he referring to a different bank guarantee scheme (eg not the 50k one)? In his speech Simon Bridges said.

Last week we stood here and said lift the cap on job support. To its credit the Government has. We called for bank guarantees and they are now being put in place. And I acknowledge the difficulty of being a Finance Minister today anywhere in the world including in this little country, Mr Robertson. Now we must ensure that on the things we agree on we are all. Full speech at https://www.newsroom.co.nz/2020/03/25/1100027/simon-bridges-full-speech…

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Good luck on trusting the bluey team, last time I remember when his mentor stating about the NZ AML, then bail out before prudent measure being put into place. Any politicians, will do the simple correction, an 'oupsy' moment, being human, misinform by staff etc.

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Has any thought been given to joint accounts? Will they be covered for up to $100,000?

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