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.”
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.