Reserve Bank Governor Alan Bollard says with the "successful" Crown retail deposit guarantee scheme ending next week it's now time to put banks, finance companies, building societies and credit unions on a normal footing.
Introduced by the then Labour-led government at the height of the global financial crisis in October 2008, the Crown retail deposit guarantee scheme expires on October 12. It is being succeeded by the extended Crown retail deposit guarantee scheme, which runs until December 31, 2011, although only seven companies have so far been accepted into the extended scheme compared to the 90-odd that signed up to the initial scheme. See story 'Countdown to the extended guarantee' here.
The Treasury says institutions eligible to participate in the extended scheme have until close of business on Monday - October 11 - to apply.
Bollard said the initial retail deposit guarantee scheme had been a temporary measure designed to give assurance to New Zealand depositors, while continuing to ensure the efficient functioning of New Zealand financial markets.
"The scheme was successful on both counts," said Bollard.
“(But) it is now time to put banks and non-bank deposit takers, such as building societies, credit unions and deposit-taking finance companies, on a normal footing."
“The scheme was set up in response to exceptional circumstances, at a time of international financial market turbulence. That crisis is now well past us.”
Read the Reserve Bank's statement below:
The Reserve Bank says the current Retail Deposit Guarantee Scheme, which ends on 12 October 2010, has served its purpose.
Depositors will now need to take full account of the risks, returns and credit ratings associated with their deposits, Governor Alan Bollard said today. The deposit guarantee scheme (which has been extended for a limited number of companies on tighter terms), is administered by the New Zealand Treasury and has covered all retail deposits of participating New Zealand-registered banks as well as retail deposits by eligible depositors in non-bank deposit-taking entities, including building societies, credit unions and finance companies
Dr Bollard described the retail deposit guarantee scheme as a temporary measure designed to give assurance to New Zealand depositors, while continuing to ensure the efficient functioning of New Zealand financial markets. The scheme was successful on both counts, he said.
“It is now time to put banks and non-bank deposit takers, such as building societies, credit unions and deposit-taking finance companies, on a normal footing.
“The scheme was set up in response to exceptional circumstances, at a time of international financial market turbulence. That crisis is now well past us.”
The Reserve Bank’s focus with the retail deposit scheme was on the stability of New Zealand’s financial sector. From 1 December 2010, the Reserve Bank will oversee new regulations governing non-bank deposit takers. Dr Bollard said banks now enjoy a strong level of public and market confidence. He said parts of the non-bank lending sector had come through the recent period well.
Other parts would continue to face adjustment. “In the finance company sector, over the medium term, there’s an improving outlook most notably for institutions with stronger capital positions and better risk and liquidity management practices.
“Among savings institutions, comprising building societies, credit unions and the PSIS, there will likely remain a high level of confidence, supported by their sound performance through the recent downturn. “In the absence of a government guarantee, it is vital that depositors understand the risks and the potential trade-off between risk and return. In this regard, one useful tool is an entity’s credit rating – which banks and all but the smallest NBDTs are required to hold and publicly disclose.
“The more stringent regulatory regime for deposit-taking institutions will be a further catalyst for change.”
The Reserve Bank is the prudential regulator of non-bank deposit takers which, from 1 December 2010, will be required to have:
·Credit ratings from an approved rating agency.
· Governance arrangements designed to ensure they give proper consideration to the interests of all stakeholders.
· Risk management programmes outlining how they will identify and manage key risks, such as credit and liquidity risk.
· Minimum capital requirements included in trust deeds.
· Restrictions on a deposit taker’s related party exposure. ·
Liquidity provisions enabling them to withstand a plausible range of shocks.
4 Comments
I agree with Bollard. It has done what it needed to do. Just a pity that they didn't have time to iron out some measures to reduce the gross irregularities that resulted.
Finance companies at risk, should have used the 2 year period of grace to exit the market gracefully, rather than continue to take on more and more depositers' money - thereby just extending (and in cases like SCF, making worse) the inevitable day of reckoning. It was supposed to buy them time to resolve their issues, not allow them to embark on irresponsible growth strategies. Perhaps a cap on what new money they could accept after Oct 08 might have helped reduce the carnage?
Isn't hindsight a wonderful thing...
Nevertheless, critics of the GG forget the dire state we were in two years ago. Well done to the government and their agencies for managing the crisis as best they could.
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