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Gareth Vaughan argues the RBNZ has inadvertently made a case for deposit insurance as disclosure statements don't cut the mustard for the average depositor

Gareth Vaughan argues the RBNZ has inadvertently made a case for deposit insurance as disclosure statements don't cut the mustard for the average depositor

By Gareth Vaughan

The Reserve Bank, whose honchos have publicly expressed opposition to the introduction of deposit insurance in New Zealand, has inadvertently made a case for deposit insurance.

In a summary of submissions and policy decisions on its regulatory stocktake of banks' prudential requirements, released just before Christmas, the Reserve Bank said it wouldn't be scrapping off-quarter disclosure statements. These are the general disclosure statements banks must issue for the two quarters a year when they don't report half-year or full year financial results. Instead the Reserve Bank plans to introduce a quarterly electronic "dashboard" of key financial information on individual banks' covering off-quarters.

Among six reasons listed by the Reserve Bank supporting the retention of off-quarter disclosure is this one:

Ordinary depositors in New Zealand are not covered by a deposit insurance scheme, and if their bank becomes insolvent and is subject to OBR they may lose part of their deposits. This is consistent with the philosophical underpinning of the regime which stresses market discipline, and the fact that it is not a “zero-failure” model. Disclosure is a key element that supports this framework, and significantly scaling it back would be inconsistent with this approach.

OBR is the Reserve Bank's controversial Open Bank Resolution (OBR) Policy, which is a tool that could be used if a bank failed. (Here's our story from 2013 on how the OBR might work, if implemented after a bank failure).

As highlighted by David Mayes, a University of Auckland Professor of Banking and Financial Institutions and a former chief manager and chief economist at the Reserve Bank, having OBR without depositor insurance is "incredible" given any government is going to be nervous about implementing OBR if a large number of voters are going to lose money. Thus the old chestnut of a taxpayer funded bailout remains a more politically palatable solution to a major bank failure.

The trouble with having banks' general disclosure statements as a key plank of a disclosure regime designed to assist the average bank depositor is the fact very few bank depositors read disclosure statements. And most who do will find disclosure statements nigh on impenetrable meaning they may be no better off in terms of assessing the bank's financial strength.

The Reserve Bank says recent data from its website shows about 100 hits from external users per month on the tables comparing data from banks’ disclosure statements. And it says 2009 data from some of the big banks shows a few hundred hits per month on the disclosure statement pages of their websites. If you take out rival banks' staff keeping tabs on their competitors, academics and a few journalists, this doesn't suggest many depositors are regularly perusing general disclosure statements.

And we are talking about big sums of money here. Reserve Bank statistics show that as of November 2015, total household deposits stood at NZ$149.3 billion, dwarfing the market capitalisation of the local sharemarket, which stood at about $107 billion as of Monday morning.

In a speech I listened to last July, Mayes summed up the flawed thinking behind the disclosure statement regime vis-a-vis depositors: "I was in the Reserve Bank when we set up the current scheme and we thought that disclosure documents would actually be read by somebody. This was a dream. I don't know why we thought it."

A much more practical option, if New Zealand is serious about protecting the public's bank deposits, is introducing deposit insurance. 

NZ an outlier

As this list from the International Association of Deposit Insurers (IADI) shows, New Zealand is an outlier among developed countries in that we don't have deposit insurance, with 113 jurisdictions having it as of 2014. There's more detail reinforcing this point on page 8 of this Reserve Bank of Australia document noting the likes of Australia, Canada, Hong Kong, Singapore, the USA, India, Britain, and major other European Union countries all have deposit insurance. Under the Aussie scheme, deposits are protected up to a limit of A$250,000 for each account-holder at any bank, building society or credit union that's authorised by the Australian Prudential Regulation Authority.

In 2013 Treasury said the lack of deposit insurance increases the risk of a retail bank run should there be a significant loss of depositor confidence. And that same year Reserve Bank head of prudential supervision, Toby Fiennes, acknowledged deposit insurance would be easy to accommodate within the Reserve Bank's toolkit of crisis measures.

However, Fiennes also said moral hazard and the difficulties of defining boundaries and pricing were the reasons New Zealand doesn't have deposit insurance noting: "We believe it is better to keep the risk of failure very low, including through a strong regulatory framework, than to build structures that can distort incentives and behaviour."

And Prime Minister John Key has said a deposit guarantee scheme would prove too costly for consumers because banks would pass on the cost of any deposit insurance levy to consumers. Yet, Australia, where the same big four banks dominate the landscape, does have deposit insurance. In contrast to National, all of the Greens, NZ First and Labour have called for deposit insurance in recent years. The Greens and NZ First have suggested insurance up to a level of $100,000 and Labour's David Parker has called for a $30,000 threshold.

New Zealand did, of course, temporarily have deposit insurance through the hastily thrown together and flawed Crown Retail Deposit Guarantee Scheme, which ran for 38 months from October 2008 until the end of 2011 and cost taxpayers' the thick end of $1 billion largely due to the demise of South Canterbury Finance.

'It pays for itself'

Both Fiennes' and Key's views were rubbished by Mayes, who is also a member of the IADI Advisory Panel, in this Double Shot interview. He argued the costs of deposit insurance are "trivial", saying: "In particular if deposits are not insured banks have to pay more for them so in many respects it (deposit insurance) pays for itself."

And in terms of the moral hazard argument Mayes argues: "The way of turning it (the moral hazard argument) around is two ways. First of all is it really acceptable for ordinary people to lose money on that scale through what is in effect no fault of their own? Second, the idea that individuals monitor their banks and the risk involved in any meaningful sense is just wrong."

Deposit insurance would, of course, be no panacea to a wholesale failure of the banking system. But it would provide a reasonable level of protection to New Zealand retail punters against losing money through no fault of their own, and bring them in line with counterparts in comparable jurisdictions.

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Very good article, though part of me wants to see OBR enacted on one of our banks, so that the subsequent mass run on all of the other banks as people wake up to what OBR actually means and rush to exit the whole banking system in panic (with resultant financial chaos), just to be able to say ' see, told you this would happen you dumb morons'.

Oh, and cue Steven to be along presently to tell us what a good idea OBR is......

LOL. Well it is.

Can tell me why it isnt?

You go on about climate change etc etc which in effect is a cost forced by this generation onto future generations who with peak oil etc will be worse off already but cant see a financial bail out as the same thing?

I would like Kiwibank to bring in depositors insurance. This bank being govt owned would face higher pressure for a govt bailout anyway so it would be an excellent one to be the first to bring in depositors insurance. Not only that, if the Oz owned ones chose not to bring it in, Kiwibank would have a nice wee marketing edge.

If its brought in as a regulation then all banks should be doing it not just one, ie a level playing field. On top of that if the Govn forces this onto Kiwibank it in effect becomes the last man standing which it should not be.

totally agree, should be 100K, the OBR will not work do you think any government will not step in and foot the bill up to a level, if they did not they would not get relected for a long long time.
as for JK he would be the first to throw government money at it, A to protect his friends and doners B because the polls told him too

So its a free gamble? you find it totally acceptable that someone else gaining no benefit carries the loss if a careless person loses?

PS If the Govn is the insurer then the tax payer coughs up either way.

In terms of not getting elected, yes I can see that but its still immoral IMHO.

"you find it totally acceptable that someone else gaining no benefit carries the loss if a careless person loses?" ..........that's socialism for you Steven.....

If the RBNZ's job is bank supervision then perhaps they should be ensuring that they are adequately supervising.........The OBR is pre meditated theft.!!

NZ'ers have a high savings rate to the mortgage, overdrafts and personal debt is the banks "other" activities that appear to have the biggest potential in causing problems!!

Well I have no problem with some socialism, its not black nor white its a shade of grey.

the rest I dont agree with either. So if we dont have that "theft" its OK for you as a tax payer to pick up the bill?

No it would not be OK for me to pick up the bill as a tax payer.......but we all know that is what is going to happen......I would find the OBR slightly more palatable if depositors were paid for the use of their cannot have the regulator taking over in a bail in while setting OCR and other parameters (it's fox in the chicken run stuff) I said above the real issues of "other" bank activity are not being dealt with....The RBNZ are meant to undertake bank supervision so why have they not split up the various "other" activities and ensured those areas have adequate equity underlying the activity. It is obvious from the savings figures that it is not a lack of savings to mortgages etc that is the problem there is plenty of headroom space there.......what assets back the derivatives trading desks of the banks? There are a lot of degrees of separation inside the banks....personal, business, agriculture, trading desks etc so there is no excuse for the RBNZ to not have its finger on the pulse and know exactly which area is capable of collapsing the whole shebang.

This is immoral - the State picking winners on the back of lowly rewarded depositors.

New Zealand central bank Governor Graeme Wheeler needs to get inflation back to target and some observers think he has “plenty of room” to cut interest rates, Finance Minister Bill English said.

“He’s been out of the zone for years now, below the midpoint for quite a long time,” English said in an interview late Thursday, referring to Wheeler’s 2 percent inflation goal. “He’s meant to be following the Policy Targets Agreement, that’s the bit I look at, and one day somebody will start asking the minister of finance questions about whether he’s actually following the agreement or not.”

The PTA between English and Wheeler stipulates that the Reserve Bank governor must keep inflation between 1 percent and 3 percent on average over the medium term, with a focus on the 2 percent midpoint. That target will be missed for a fourth straight year in 2015, with inflation currently running at just 0.1 percent. Wheeler, who raised borrowing costs four times in 2014, last week cut the benchmark rate by a quarter percentage point to 3.25 percent and said one more reduction was possible. Read more

Why is it immoral? what is moral about having the tax payer who receives no benefit from the transaction bailout a careless gambler?

Why if the depositors reward is so low do they not invest in more profitable ventures? they are free to do so any time.

Then you do a quote saying inflation must return, which entails a lower OCR, 100 basis points, that will be great for depositors.

Why is it the RB's sole responsibility? If the Govn was serious about getting back to 2% inflation then it needs to be spending on public good like schools etc ie putting money into the economy to do so.

--edit-- If I was Dr Wheeler I would be telling BE the above, ie your austerity is counter-productive and damaging and it is this that is causing a low CPI and rising unemployment.

Modest Hutt House rises start to take off in 2016

Hardly a theme of modest bank lending, stability and conservatism.

so in your mind they should join the flock and use on rental housing, if it goes tits up no problem bank picks it up.
it is not the depositer that is gambling but the rental house investor and the banks are the enabler whilst the government encourages it with tax policy

Steven I always find it hard to understand your views.......You always reinforce your opinion on why regulators are necessary........You say it is to protect the people i.e. keep them safe!!!......but when a regulator fails or implements policies that have detrimental outcomes to the people you then bag those people for not looking after themselves.........Your views are similar to that of a fascist !!

Taking a risk on those carrying out regulatory activities is an extremely high risk gamble!! and business are complicated enough without having to put up with bureaucrats who haven't made it in business or on the outside first......yet you are deeming these bureaucrats as being suitable to lead the charge and the ordinary person on the street should be able to avoid not only the market ups and downs but also these inexperienced in the real world people who formulate bureaucratic policies. That's a bloody big ask when the average person has to basically work 6 months of the year to fund the state nonsense......

No person can ever be informed on Government or the bureaucracy when they churn out millions of pages in documents weekly.......And the only thing any of us can hold any of them too are the constitutional documents......

If you put the RBNZ or any other bureaucracy on a seesaw and Jo Public on the other end then you will find Jo Public with dangling legs.......this is why we have inequality.....the balance of power is meant to be equal !!!! It is the constitutional arrangement vs state and in the case of the RBNZ it has basically chosen a deal that does not treat everyone the same......

Bravo - absolutely on the money.

So your car needs a service and you take it to the garage, the following day, when you go to pick up your car, you find out your car has been sold the the funds used to pay the garage's debts. So how is this fair steven?
You were not an investor/shareholder in the garage and didn't want to be. How is that morally any different to depositors loosing their deposits in a bank under the OBR?

There are other alternatives - like requiring banks to hold extra capital and clawing back any dividends or bonuses paid in the past 12 months, spliting the bank into a good and bad asset bank, even printing money etc... that could be enacted by tighter regulations/laws before needing to call on the taxpayer or steal money from the depositors....

Writing off or writing down deposits will reduce the money supply and encourage fear and create bank runs, its just plain stupid. (Therefore of course I wouldn't put it past any politician or bank regulator these days).

It is completely different. This is not the same argument in fact an extremely bad and un-supportable analogy. The car is not capital being invested for a profit which you enjoy. Your money/capital is an investment and all investment has a degree of risk of loss.

NB. as the legal owner of the vehicle I assume you would have recourse to recover your property as long as you had paid the service bill.

As someone who is going to get my car serviced a) I do it mostly myself as just in investing. b) If I could not I'd choose a garage I trusted.

"claw back" etc, I have some issues with retrospective actions.

If we get an OBR event we will have already suffered a huge economic impact so writing down some deposits is no biggee.

In saying this however I have no problem with a private insurance scheme ie as long as the tax payer is not involved.

I dont disagree on the risk and impact of bank runs. I think they are certain myself, hence you cannot insure for an expected catastrophic event.


Well I disagree steven. The analogy is the same in most peoples minds. Most people (if not all) don't want to invest in a bank by making a deposit (or they would buy shares instead with the money and you could hardly call the deposit interest rates a fair return). Often they don't have a choice as employers pay salary and wages to a bank account (and don't pay employees just in cash). Depositors are not conscious investors, even if the OBR treats them as such (which it does).

To argue that one 'lends their car to a garage for them to improve it - and the car becomes theirs to do with as they please is just morally wrong. Its the same for a depositor. While this may not be admittedly the legal view it would be the view of common people. I don't get any interest on my transactional ASB account.

Just because it is in some ppls minds does not make it true/correct.

In terms of salary the OBR is pretty clear on that ie in the OBR event the cash side of a bank opens quickly and salaries can be accessed, while the deposits side is locked down. On top of that if my bank closed its doors I would be off to my employer and telling them to deposit my salary in another bank, so I've lost 2 weeks pay worst case. Of course depositors are conscious investors, they have to make an action of moving money into a deposit.

Your car argument is frankly rubbish. You own the item, I mean can you actually offer me a real world case where the receiver knowingly sold the items and then said stuff you? with no legal comeback?

So we get back to a 'common view" which like 'common sense" is really your un-supported opinion. As the law says ignorance of it is no defence and that legal view is my "common view"

Sure you do not get any interest on your transaction account. Um well that is arguable, the bank gives you a service that of having your money there for you, ie there is a reward. Hence if I lost 2 weeks wages due to an OBR OBR event I cannot get too annoyed.

The case then for holding multiple bank accounts is quite good.

Transactional accounts are exempt from the OBR? - reference please - where does it say that only term deposits are subject to the OBR (unless you are confusing it with the de minimis)?

In most peoples minds they 'own' what is in their bank account, in your mind you pass ownership of everything in your bank account to the bank (while the later may be the technical legal view and your view, its not the view most people have, they see their deposits as belonging to them in the same way that their car belongs to them even though its not in their possession steven. I think this point is really obvious. 90%+ of people you meet on the street would say they own the funds in their own bank account). They are not consciously or intentionally becoming investors in the bank, thus most would not seek independent financial advice before opening a savings account.
The garage gives you a service for having your car with them, in fact I could argue that they actually increase the value of your car capital while it is with them...

I'm Sorry Steven, but Economist has nailed it, and it is a point that I have brought up before. If an event occurred that caused people to loose their deposits, then I suggest that banks and bankers would be the first that people would put on the pyre. Politicians would closely follow for having allowed the law to be altered that meant that by depositing their money into a bank account meant signing over ownership of it to the bank. Irrespective of the current legal definition, most people use a bank because they see little to no choice or alternative, AND they believe that they are more like loaning their money to the bank to be put to work for them (along the lines of the original concept of a "bank"). Start highlighting that the bank actually "owns" the money in their depositors accounts and many people will starting arguing against, and pollies and bankers will start sweating!

Steven, or anyone else I am struggling with this as where can I hold my funds whilst waiting to get a loan from the bank to buy that house in Auckland. A catch 22 need an enormous deposit but too risky to keep it in the bank. Happy to pay the deposit insurance to make sure the "house deposit" does not evaporate to save the bank before I buy the house.

..AUS bank deposits are an option. Govt guarantee (up to $250k I recall). Not partularly hard to set up these days.

Trouble is, whether you realise it or not, when you deposit money with the ASB, you are basically giving them money to gamble on house prices, with the depositor and the home owner bearing most of the risk.

My guess is the key reason OBR was favoured was because it leaves the government options open. They can decide how to respond when things go wrong, rather than the South Canterbury finance disaster where their hands were tied.

the whole Finance disaster was a classic case of property fueled speculation and no meaningful oversite by the authorities, look how many directors were charged after the fact
now that has financing has shifted to the banks will the same happen again, very likely, who knows when
and this time the government bill will be a lot lot bigger, why do they not want to put steps in place to make sure it does not happen
Follow the money

The whole history of Finance is a classic case of credit creation out of thin air in order to fund property speculation with no meaningful oversite by the complicit authorities. The authorities are essentially corrupted by the ideas of the cleverer finance boys. They also benefit politically and financially during the boom times and are insulated from the effects of the bust.

The authorities even believe that house price inflation and increased indebtedness are good things (they talk excitedly about increased credit creation). Which just goes to show how messed up their thinking is. It just takes a little while to make a whole country uncompetitive.

The society's surplus becomes interest payments to finance and are taken out of the production/consumption/investment in production cycle. Instead they are used to compound the wealth transfer to finance.

agree with you there, when JK was going on about everyone likes their house prices going up and i was thinking why? so they can use it as a credit card (more money for the banks). unless you own heaps of them and can sell one every now and again for spending where is the advantage.

Directors largely not convicted.

Who would the insurer be? who would pay the premiums?

If its the Govn as the insurer then its me as the tax payer, in effect its negating the OBR effects.

If the depositor is paying no premium then its still a moral hazard.

On top of that my view is we will see OBR events and within 10~20years so its a dead cert loss for the tax payer.

If on the other hand the insurer is a legitimate 3rd party then sure.

So my view (subject to change) is no.

No doubt the Banks would pass the cost on, but personally I believe that they should not be allowed to. their declared profits mean that they can well afford the cost of the insurance, and denying their right to pass the cost on would perhaps mean that they might just police themselves a little more rigorously to cut the cost of any premiums. Deposits should be insured to at least $100k. JKs statement as quoted clearly shows that he is firmly in the Banks pocket (and I suspect the pockets of any other big business).

Perhaps it is time to remind him that he is elected to serve the people of this country not business?

Well one way would be to offer 2 rates with and without deposit insurance, then people can choose. To be clear I have no issue with a 3rd party receiving a premium to insure the loss, leaving aside the ability to payout of course.

"remind him" look at the last election, he's clearly reminded on what counts, ppls wallets.

At $149B could any insurer adequately cover that amount if all deposits were covered? As the article states NZ is now out of step with much of the west, so the total amount insured will easily be in the mega trillions. Any bank failure, particularly here is unlikely to be a one off (unless caused by rank dishonesty of its staff (ANZ anyone?) Are banks insured against staff dishonesty?), but rather the result of a cascade effect from a crisis else where. So even if insured how likely would we see any pay out?

the premiums are covered by the borrower, especially investor borrowers having to pay a slighter higher rate for interest to cover

The OBR system in NZ is not only unique, but if invoked would have the opposite of its stated intent. It would be destabilizing in numbers of ways.

Unlike RBNZ, the Reserve Bank of Australia recognizes the role of regulation and insurance to depositors.

"An essential feature of a well-functioning financial system is its ability to channel funds from savers to borrowers. Banks and other deposit-taking institutions provide this function by accepting deposits and issuing debt into capital markets, and then lending these funds on to borrowers, typically at longer maturities. For this process of financial intermediation to work effectively, depositors and other creditors need to have a sufficient degree of confidence that their funds are safe. In the absence of depositor confidence, there is a heightened risk of deposit runs and contagion to other institutions given the limited scope for most depositors to
differentiate between safe and unsafe banks. Confidence in the banking system is therefore important for financial system stability and, to this end, governments and regulatory authorities put in place various legal and regulatory arrangements to
support confidence among bank creditors that their funds are secure."

In Australia 100+ financial institutions including the major banks have deposits insured to $250,000. The depositor can spread his or her risk by placing this amount in as many banks as they see fit - just a bit of paper work to insure financial stability.

In the US, there has was no tax payer input to the FDIC for the numerous failed banks - all of which were insured to $250,000 per person and none of which were closed for business other than the weekend while the closure was invoked.

The RBNZ has chosen a unique and risky approach (to depositors) while the banks are relieved of obligation for prudent management given OBR, covered bonds and light regulation. Speculators and investors in property are certainly favoured versus those have tried to save - and those who will suffer under OBR will be the depositors.

Nailed it. An OBR event (even on one of the smaller banks) will trigger mass panic as 90% of the NZ public are totally unaware of the provisions of this regulation. Once it dawns on people that a percentage of their money in hand at their bank (and it is not merely depositors, it would apply to all accounts with positive balances from what I can see) is at risk of confiscation they will take the entirely logical decision to withdraw funds (there would no doubt be a flood of cash going to Australian accounts - large numbers of Kiwis have them and this it was partly to prevent this flow that the emergency 2009 guarantee was brought in). Within a few weeks there would be runs on most if not all of the banks. This is precisely what deposit insurance is designed to prevent as it gives people the confidence that their money is not at risk. Just look at what happened in the UK with the collapse of Northern Rock - initial panic (yes people did start getting in line outside their local branch) was stopped in its tracks by the UK government stepping in and guaranteeing Northern Rock deposits and increasing the guarantee on deposits held at all other financial institutions. Had they not done so the UK banking system would have suffered numerous synchronised bank runs. Incredibly our banking regulators have learned nothing of human behaviour and seem determined to test our system to destruction with OBR. The whole idea of a deposit insurance scheme is that it averts such chaos in the first place and if set up correctly (using funds from the large profits the banks make) it costs the taxpayer nothing, so the idea of moral hazard is neutered. The institutions that indulge in the risky behaviour in the first place (the banks) bear the cost of this behaviour in paying the insurance for when they fall over.
Unfortunately National and the Treasury have been captured by the banking industry and the consequence is the OBR.

1. 'Within a few weeks there would be runs on most if not all of the banks'... more like a few DAYS (if not a matter of mere hours...)
2. Those with term deposits couldn't just withdraw funds for at least 4 weeks notice given to the bank who then may consider their request, by that time it maybe too late for them.

Fortunately the OBR is not law but it gives the government another stupid option.

Talked to a banker today, he has not heard of OBR!!!!

I have had exactly the same experience - a while back I had to inform the RBNZ when Kiwibank employees were telling my father NZ Post guaranteed his deposits, not knowing OBR precluded this practice.

The OBR is a complete and amateurish joke.
I would venture to say every tax payer has a bank account. That makes all taxpayers interested in deposit insurance. All the arguments against deposit insurance have been thrown out by ALL the developed nations with any financial sense. People don't put money into a term deposit at a measly 3.5% (eg.12 month term?) not expecting some security.
This is where, in NZ, the Govt. is completely lacking in hugely important oversight. Banking is not like "any other business". In NZ you are trusting your money to an entity that is paying you a pittance. In all other financially literate countries this is meant to be the most secure investment you can make, even more secure than putting your cash under the mattress (which could easily catch on fire from the methane that comes from certain frequent commenters here).
Successful economies encourage savings so the Govt. doesn't have to entirely support their sorry butts in retirement years. That encouragement should be backed by a certain level of security given what is meant to be a very conservative way to hold your money, no matter who ends up paying for it.
I would venture the banks themselves should be pushing for deposit insurance if they thought they were conducting their business in a legal, ethical and fiduciary responsible manner. Maybe that's why NZ does not have it??
As much as I generally respect John Key, his opinion on this is DEAD WRONG. The healthy financial backbone of a country is represented by depositors insurance, not to mention it is a way a country can conduct business knowing that the Government of that nation respects the financial integrity of its banks and respectively, the nation itself.
This is a complete no-brainer for any financially literate person. There is just no intelligent downside.

The anti-deposit insurance fools who think that the 'yeah nah, she'll be right, just write down a few deposits' or 'i'll just tell my employer to pay my wages into another bank so at most i only lose a couple of weeks of pay' attitude is pi$$ poor in my opinion. What if your employer is the same bank as you? then what?

Personally I was bailed out by deposit insurance in the UK back in 2009 when the icelandic banks collapsed and got my 30k pounds back - it took a few months but i got back every penny eventually - boy was I grateful for it. I bet a pint that JK has all his money overseas - he's not stupid, he worked in London at the big banks, he knows how it rolls. For all the innovation we trumpet on about, why is NZ so backwards especially at financial matters!?!? it does my head in. If depositors have to pay a few cents in every hundred dollars for insurance, so be it...

No, no, no. Adding another cost will only lead to customers footing the bill and banks taking more profits offshore, about $8.5bn in 2015. Banks need to reduce their risk(s). They also need to stop "printing money" writing mortgages which equates to about 88% of their balance sheet. Unbeknown to the customer, their deposits in their accounts is the "insurance" the banks have a legal obligation to call on which is about $128bn in total, if there is a crisis.You can thank Simon "I work for Westpac now" Powers. So instead of loading up the customer with more risk & debt obligations to the banks, the "Banks" should take out insurance on themselves and pay for it from the massive annual profits they make from the NZ Customers. Not Rocket Science.

There has not been much discussion on what the "de minimus" amount might be and whether 50%, 90 or 100% of the amount above this would be confiscated.
More transparency needed.
The Govt does not seem to ask why NZ is such an outlier internationally with the OBR.
It incidentally encourages people to buy houses, reasoning that if it all turns to custard, I will still have a house, rather than giving it to a bank CEO etc.
House speculation should be more risky by far than term deposits.
If the OBR is here to stay bank leverage should be drastically reduced by much higher capital requirements; sourced by reducing bank shareholder dividends, currently disappearing across the Tasman in the billions.

Clearly the RBNZ could be doing *much* more to regulate the NZ banks, especially the four major foreign owned banks.

For a start they should require more NZ retained earnings to make the banks more robust should there be economic problems. They should require higher provisions for bad debts. They should reduce the amounts of money in covered bonds, whereby overseas lenders to the banks get the first call on the best performing NZ residential mortgages - and are not subject in any way to OBR. This will obviously reduce any amount returned to NZ depositors.

There is no requirement for the Australian owners of the major NZ banks to support the NZ subsidiaries in any way should difficulties arise in the NZ financial structure. The RBNZ has set up a one-way street flowing from NZ to (mainly) Australia.

And Australian depositors to the Australian banks are covered to $250,000 each person each financial institution - of which there are more than one hundred. Should these guarantees come into play, it will be NZ bank depositors who are penalized and subsidizing these guarantees.