Treasury expects NZ$468 mln total fees from retail deposit guarantee scheme

Treasury expects NZ$468 mln total fees from retail deposit guarantee scheme

The Government collected NZ$237 million in fees from financial institutions participating in the Crown retail deposit guarantee scheme up to June 30, and expects to book a further NZ$231 million in deferred fees up to the 2014/15 financial year.

These figures were revealed in the June year Crown accounts released today.

Eight government guaranteed finance companies have collapsed, topped off by the demise of South Canterbury Finance on August 31, triggering a NZ$1.6 billion payout under the Crown guarantee. The Government hopes to recoup a significant chunk of this by selling South Canterubry Finance's assets.

However, the biggest payers of guarantee scheme fees have been the major banks. ASB revealed in its most recent General Disclosure Statement that it had paid NZ$36.8 million in fees.

Introduced on October 12, 2008 at the height of the Global Financial Crisis by the then Labour-led government, the Crown retail deposit guarantee scheme ended this week, on October 12. The accounts show fees collected of NZ$74 million in the year to June 30, 2009, NZ$163 million in the June 2010 year and NZ$231 million of deferred fees at June 30, which a Treasury spokesman said the Crown expected to recognise in the period through to the 2014/15 financial year.

As of June 30, 73 financial institutions - with the number unchanged from last year - had joined the scheme and deposits totalling NZ$133 billion, up from NZ$124.2 billion last year, had been guaranteed.

The accounts include a provision for future retail deposit guarantee scheme payments of NZ$748 million at June 30, down from NZ$816 million a year earlier. This includes three companies - South Canterbury Finance, Allied Nationwide Finance and Mutual Finance - that have collapsed into receivership since June 30. The provision is based on the expected cost of future payments to investors after expected recoveries in entities operating under the guarantee scheme as of June 30.

The Crown retail deposit guarantee scheme has been replaced by the extended Crown retail deposit guarantee scheme, which runs until December 31, 2011. Only seven companies have been accepted into the extended scheme.

(Update adds detail of ASB's fees).

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FYI, a Timaru Herald story here suggesting south Canterubry folk sank NZ$106.8 million into Allan Hubbard's Aorangi Securities and Hubbard Managed Funds, or 60% of the total invested. It also says the SFO will decide whether to charge Hubbard at the end of next week -

...and where did the $468m come from........customers of the big banks.

Luckily we don't have any banks here on Craggy Island!

From Money morning



That's why it's important to consider how banks really work. This is where we get back to fractional reserve banking.

Remember how people swarmed the banks in the UK and the US to withdraw their deposits as soon as there was a whiff of trouble at the banks. Well, take a look at the latest Commonwealth Bank annual report.

The CBA records in its balance sheet that it holds $374 billion of "deposits and other public borrowings."

Yet, if you look in the Assets column you'll see the bank holds just $10.1 billion of cash and liquid assets. And if you drill down further you'll see that the CBA holds just $3.09 billion in "Notes, coins and cash at banks" in its Australian vaults.

In other words, it tells its customers that their cash is available when they want it, yet less than one cent on the dollar is sitting in the CBA's vaults.

So, run it past me again. If Australia's property market collapses by 40%, according to Fitch, this will only have a negligible impact on the banking system.