Sliding fee scale set for NZ deposit insurance scheme

New Zealand's Treasury and Reserve Bank yesterday published final details of the terms of the Crown Retail Deposit Guarantee Scheme, as the new system of deposit insurance will be called.

As in Australia the scheme is not quite as generous to depositors and institutions as implied in the rushed announcements of two weeks ago.

Insured deposits will be capped at NZ$1 million though depositors may hold insured amounts at different institutions.

All financial institutions with liabilities of up to NZ$5 billion will now pay a fee for the insurance, though this will apply only to growth in liabilities since 12 October 2008, and even then institutions will be able to grow liabilities by 10 per cent as year and still avoid the fee.

The fee will be tied to an institution's credit rating and be 10 basis points per year for those rated AA or better; 20 bps A rated entities; 50 bps B rated entities and 100 bps BB rated entities.

Institutions BBB or less, or that are unrated, will pay a fee of 300 bps, though still only on liabilities in excess of the level two weeks ago.

Financial institutions with liabilities of in excess of NZ$5 billion will pay these fees on the excess and not on growth in liabilities.

Treasury will publish lists of guaranteed institutions from Tuesday but only as fast as applications to opt-in to the scheme are processed.

The government is yet to explain how any government guarantee on term funding, if any, may work, and whether or not regular deposits of in excess of NZ$1 million might qualify for government backing under that second scheme.

While the implication in the New Zealand case is that they would not, the parallel debate in Australia seems to be proceeding on the basis that they would.