New policy to hit Kiwi depositors if a bank falls
(21 March 2013 – New Zealand) At the end of June, New Zealand will bring in the Open Bank Resolution (OBR) policy that would mean bank depositors would have to share some of the burden of a bailout, similar to what is happening in Cyprus now.
The big banks in New Zealand are owned by Australian parent companies. They are all highly rated by credit rating agencies, with strong domestic businesses and consistent, healthy profits.
Though a bank collapse in New Zealand is seen as a very remote possibility, the Reserve Bank of New Zealand (RBNZ) has proposed that an unspecified portion of deposits in a bank that failed are kept to provide enough money to allow the bank to quickly reopen.
How bad that loss, or 'haircut', would be depended on how big a shortfall a bank faced.
The RBNZ proposal has been planned for several years but banks now have until the end of June to get their IT computer systems in shape to cope with it.
The Reserve Bank has said little about the planned Open Bank Resolution policy recently, after initial reports and submissions in 2011.
Under the OBR policy, bank shareholders would lose first; then the balance of losses would be faced by creditors.
The Open Bank Resolution policy is a long-standing Reserve Bank policy that, in the rare event of a bank failure, is aimed at allowing a distressed bank to be kept open for business.
The Reserve Bank says it would put the cost primarily on the bank's shareholders and creditors, rather than the taxpayer. It provides an additional tool for the Government as an alternative to bailout.
The policy does not provide the bank itself with the ability or power to access client funds to address financial difficulties. This policy can only be activated by the Minister of Finance in the event of a bank failing. It would also lead to the replacement of the existing management by a statutory manager.
In other countries deposit guarantee schemes meant depositors were promised some, if not all of their money – in Australia the guarantee is for A$250,000, backed up by other banks.
A deposit guarantee in New Zealand is seen as a "much better solution" but the RBNZ is going ahead with the OBR policy instead.
Though a bank collapse in New Zealand is seen as a very remote possibility, the Reserve Bank of New Zealand (RBNZ) has proposed that an unspecified portion of deposits in a bank that failed are kept to provide enough money to allow the bank to quickly reopen.
How bad that loss, or 'haircut', would be depended on how big a shortfall a bank faced.
The RBNZ proposal has been planned for several years but banks now have until the end of June to get their IT computer systems in shape to cope with it.
The Reserve Bank has said little about the planned Open Bank Resolution policy recently, after initial reports and submissions in 2011.
Under the OBR policy, bank shareholders would lose first; then the balance of losses would be faced by creditors.
The Open Bank Resolution policy is a long-standing Reserve Bank policy that, in the rare event of a bank failure, is aimed at allowing a distressed bank to be kept open for business.
The Reserve Bank says it would put the cost primarily on the bank's shareholders and creditors, rather than the taxpayer. It provides an additional tool for the Government as an alternative to bailout.
The policy does not provide the bank itself with the ability or power to access client funds to address financial difficulties. This policy can only be activated by the Minister of Finance in the event of a bank failing. It would also lead to the replacement of the existing management by a statutory manager.
In other countries deposit guarantee schemes meant depositors were promised some, if not all of their money – in Australia the guarantee is for A$250,000, backed up by other banks.
A deposit guarantee in New Zealand is seen as a "much better solution" but the RBNZ is going ahead with the OBR policy instead.
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