The New Zealand government has decided on the final reforms to come out of its protracted review of the Reserve Bank Act, promising to create a single regulatory regime for all deposit takers, establish a deposit insurance scheme, and create a new process for setting lending restrictions.
Work will now begin on drafting a new Deposit Takers Act.
This new legislation will create a single regulatory regime for all bank and non-bank deposit takers (such as building societies and finance companies). It will also give the Finance Minister a more active role in how the RBNZ uses macro-prudential tools to restrict lending.
Banks and authorised deposit-takers operating in New Zealand will soon have to pay levies into a fund to back the insurance scheme. If there is insufficient money in the fund to cover the cost of a collapse, the scheme will be able to access a loan from the government.
And, following a public consultation process, the government has listened to calls to increase the amount covered per depositor from the NZ$50,000 initially proposed.
The scheme will now protect up to NZ$100,000 per depositor, per institution in the event of a failure. However, this is still low by international standards, and well below the A$250,000 Financial Claims Scheme (FCS) cap in Australia.
It will cover transactional, savings and term deposits currently offered by registered banks, and the equivalent products offered by non-bank deposit takers.
Bonds, debentures, capital notes, equities and KiwiSaver funds are among the products that won't be covered.
Detail on levies backing the scheme have not been released. NZ Bankers Association CEO Roger Beaumont called for a "risk-based approach" to setting levies, where lower risk entities such as banks would pay a lower amount because they were “less likely” to call on the scheme.
Banks were already facing higher costs as part of Reserve Bank moves to phase in higher minimum capital requirements to help them withstand financial shocks, he said.
The reforms, which are the final part of a comprehensive review of the Reserve Bank of New Zealand Act, will also include a new process for setting lending restrictions, such as loan-to-value ratios.“This will give the Minister of Finance a role in determining which types of lending the Reserve Bank is able to directly restrict. The Reserve Bank will then have full discretion to decide which instrument is best suited to use and how the restrictions are applied,” Finance Minister Grant Robertson said.
The Bill is expected to be introduced to Parliament towards the end of the year, with the insurance scheme hoped to be in operation by mid-2023.