Trans Tasman talks on bank guarantees
New Zealand is working with Australia through the Trans-Tasman Council on Banking Supervision to resolve the issue of banks operating under two different deposit guarantee regimes.
Finance Minister Bill English disclosed in Parliament on Wednesday that New Zealand, which does not have a guarantee scheme, was in talks about how to align its system with Australia, which still has a guarantee.
Asked during parliamentary question time about the government's decision to allow its bank deposit guarantee scheme to lapse, English said it was "monitoring the differences between our regime and, for instance, the Australian one, which is a pretty real-time issue: to have two different regimes applied to the same banks."
"We hope to continue resolving the differences, bearing in mind that each Government has the interests of its own taxpayers and depositors at heart, and they do not always align completely with each other," he said.
English later told Banking Day it was important that New Zealand consumers realised their bank deposits were not guaranteed.
New Zealand introduced a deposit guarantee scheme in 2008 during the global financial crisis. The scheme ended in 2010, but a recent survey by the Financial Markets Authority found 52 per cent of respondents believed term deposits were still guaranteed.
"Well, they are not guaranteed and it's important they understand that," English said. "But I think they are relying rightly on the government and the bank's prudential supervisor to ensure the banks are safe," he said.
"The New Zealand view is that the Open Bank Resolution gives the banks strong incentives to ensure that they are safe institutions."
He said the 'too big too fail' perception, which assumed that the government would always bail out a major bank, was "at the core of the argument."
"At this point we have taken the view that the OBR reduces the moral hazard and that the regulatory regime makes the possibility of bank failure very small."
"We've got a system in place now with the OBR plus, of course, the overlay of the higher capital requirements which exceed international requirements," said English. "All the factors are pushing in the direction of a safer banking system and that's a good thing. Any argument to change it would have to be pretty strong."
Asked by Winston Peters, leader of the New Zealand First party, about the risk New Zealanders might move their money to Australian banks where they would be insured, English said that was a risk in 2008 but he did not think it was the case now.
"It is not clear in the future that an Australian Government would tolerate that kind of behaviour either," he said.