New Zealand Plans to Introduce Bank Deposit Protection Regime

(Bloomberg) -- New Zealand plans to introduce a bank deposit protection regime to bring it into line with other developed nations and increase public confidence in its lenders.

“New Zealand has been an outlier for many years in that we don’t have a formal deposit protection regime to support Kiwis if a bank were to fall over,” Finance Minister Grant Robertson said in a statement Monday in Wellington. While no decisions had been taken yet on how the system would be funded, deposit protection regimes elsewhere were often based on a bank levy, he later told a news conference.

New Zealand’s banking system is dominated by four big Australian lenders -- Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd., Westpac Banking Corp. and Commonwealth Bank of Australia -- which together hold around 90% of deposits. Separately, the RBNZ has told the banks it wants them hold more capital to make them more resilient.

Adopting deposit protection is part of a review of the central bank’s underlying legislation and follows reports from the OECD and IMF that said New Zealand’s banking system might be more vulnerable in a crisis without one. The government will also give the RBNZ more tools to bolster prudential supervision as part of the review.

Limited Protection

New Zealand is proposing deposit protection of up to NZ$50,000 ($33,000), which would cover 90% of individual bank deposits, but only about 40% of the total value, Robertson said. Final decisions and details will be announced in early 2020.

The proposed regime would put the nation toward the lower end of protection when compared to similar economies, Robertson said. Australia introduced a guarantee on deposits of up to A$250,000 ($174,000) in 2008 at the height of the global financial crisis, while the U.S. guarantees deposits of up to $250,000 and the U.K. guarantees up to 85,000 pounds ($108,000).

Robertson said the next phase of the review of the RBNZ will include looking at the bank’s supervision and enforcement powers, and whether penalties are tough enough to discourage certain behaviors.

The government is considering adopting elements of overseas frameworks, which would increase the responsibilities and accountabilities of senior executives for the actions of New Zealand’s banks and licensed deposit-takers, he said.

‘Stricter Regime’

Models in Australia and the U.K. go a step further than New Zealand’s current director-attestation regime for banks by also holding senior managers to account for the prudent management of their bank within their area of responsibility, he said.

“We want to look at the balance between the more light-handed regulatory model that the Reserve Bank has traditionally had, versus what we’ve been advised by the IMF and others over the years should be a stricter regime,” Robertson said.

The announcement comes after the RBNZ last month censured ANZ Bank New Zealand Ltd. over persistent failure to comply with rules around modeling risk capital requirements.

Earlier Monday, the RBNZ requested that ANZ New Zealand provide two independent reports to assure the central bank it is operating in a prudent manner. Last week, ANZ New Zealand Chief Executive Office David Hisco quit after a review revealed mis-characterization of personal expenses.

New Zealand Prime Minister Jacinda Ardern said Monday there was no need for New Zealand to follow Australia and hold a Royal Commission into banking.

The government has also taken a number of in-principle decisions to guide the review of the RBNZ Act:

• The RBNZ will retain a prudential supervisory role, rather than separating it into a new agency
• A new governance board will be established that will be given statutory authority over all RBNZ decisions apart from monetary policy
• The Treasury Department will be the RBNZ’s monitoring agent
• The separate regulatory regimes for banks and non-bank deposit takers will be merged into one

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net

To contact the editors responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net, Peter Vercoe

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