NZ Treasury puts a price on the retail guarantee

New Zealand's government has provided for NZ$816 million in its financial statements as at 30 June 2009 to allow for future payments under the guarantee for small, and mainly non-bank, financial institutions. The Treasury published the financial statements yesterday.

No provision has been made for future payments under the guarantee for institutions with deposits of more than NZ$5 billion.

By the end of June, 73 financial institutions had joined the scheme, with deposits of NZ$124 billion guaranteed.

Another $5.7 billion in wholesale securities has been guaranteed under a separate scheme.

Treasury said it estimated the cost of making payments in the case of the finance companies so far covered by the guarantee at NZ$34 million. The two were Mascot Finance, which failed in March 2009, and Strata Finance, which failed in April.
 
Treasury noted that the provision for future payments in the financial statements at June 2009 was based on the assumption that the Retail Deposit Guarantee Scheme would finish in October 2010, the policy position at June 2009.  

The scheme has since been extended to the end of 2011.

The provision for losses by Treasury under the deposit guarantee is equal to about one third of one cent for every dollar of household savings held in bank deposits and fixed interest investments, based on data published by the Reserve Bank of New Zealand and current at the end of 2008.