Key: Govt should have briefed me

Monday, 13 October 2008

National Party leader John Key was not briefed in advance about the bank deposit guarantee scheme, which is raising questions about the usual bi-partisan approach to monetary policy.

The Government's $150 billion opt-in scheme was announced yesterday, along with a similar move in Australia. It aims to ensure continued confidence among depositors amid a freeze on international credit that is chilling the world economy.

Mr Key said today he would have expected to have been briefed by the Reserve Bank.

'There's been bi-partisanship over monetary policy going back a couple of decades but I think New Zealanders will know we're in an election campaign and governments use that to their advantage,' he said on NewstalkZB.

'But that's not the relevant point, which is that New Zealanders can feel safe with their money in the bank.'

Mr Key said National fully supported the Government's move and he and finance spokesman Bill English would be briefed by the bank this afternoon.

Finance Minister Michael Cullen said he had to move quickly yesterday because he had been working with Australian ministers and needed to make the announcement at the same time as they did about their own guarantee scheme.

'I gave approval for a briefing to be given to Mr Key and Mr English but that was late in the day,' he said on Radio New Zealand.

The International Monetary Fund has warned of a meltdown in the global financial system, and many other countries have already moved to protect their banks.

Prime Minister Helen Clark says a Labour government would present a mini-budget in December to deal with the effects of the international financial crisis.

'It's obviously affected the kind of policies we are going into the election with,' she said today on TV One's Breakfast programme.

'We're not looking to cut overall government spending but we have to look very carefully where we direct it.'

Miss Clark said the Government was assuming the international crisis would have a prolonged effect on economic growth.

Finance Minister Michael Cullen, who is using his powers under the Public Finance Act to introduce the opt-in scheme, said he did not believe the taxpayer was at risk.

The scheme, initially for a two-year term, will cover all retail deposits of participating New Zealand-registered banks, and retail deposits by locals in non-bank deposit-taking entities such as building societies and credit unions.

The scheme will be free for institutions with total retail deposits under $5 billion.

A fee of 10 basis points per annum will be charged on total deposits above $5 billion. This means that a bank with $20 billion in retail deposits would pay $15 million in fees per annum.

'The deposit guarantee is designed to give assurance to New Zealand depositors. The New Zealand banking system remains sound. We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions,' Dr Cullen said.

Dr Cullen said today the Government did not expect the $150b contingency liability to be called on and he had introduced the guarantee it to avert a possible risk.

'There was the risk that if we were the only country that is not offering a guarantee…people might start transferring funds into Australian-based operations,' he said on Radio New Zealand.

'Obviously, in the current international circumstances people may have concerns and their reactions could create a problem that otherwise would not exist.'

- NZPA