Guarantee for savers' bank deposits due by end of next year

Thursday, 29 June 2023

A bill that would introduce a guarantee for bank deposits of up to $100,000 has passed its third and final reading.

The Deposit Takers Bill guarantees deposits in any eligible institution in the event that it fails.

Currently, all OECD countries have deposit insurance except Israel and New Zealand.

It is the final piece of legislation in a comprehensive review of the Reserve Bank of New Zealand Act.

“The passing of this bill will allow for the introduction of depositor protection and close a long-standing gap in New Zealand’s financial safety net, bringing New Zealand in line with international best practices,” Finance Minister Grant Robertson said.

“This means eligible New Zealanders will be provided economic security if their bank or other deposit taking institution fails, while helping protect the country’s financial system and wider economy. The $100,000 limit will fully protect around 93% of depositors.”

It has been suggested more deposits could be covered if wealthier depositors split their money between institutions to remain below the cap.

The compensation framework is expected to take effect by the end of next year.

The bill brings all deposit-takers, including banks, credit unions and finance companies, under a single regulatory framework.

It also gives the Reserve Bank the ability to set standards to impose prudential requirements and modernises the regulation and supervision of all deposit takers.

“The Reserve Bank will have stronger and a broader range of supervisory and enforcement powers to ensure compliance and avoid breaches,” Robertson said.

The scheme would be funded by a taxpayer-backed fund like the Toka Tū Ake Earthquake Commission fund, built up over time by levies paid for by deposit-takers.

It has been suggested this will be ultimately passed on to depositors as lower savings and deposit rates.

Robertson said the Reserve Bank and Treasury would soon consult with banks and other institutions on the funding strategy and levy framework.

“Overall, the bill considerably strengthens New Zealand’s financial system safety net and contribute to a robust framework of protections for depositors.”