KEY POINTS:
Greater urgency needs to be shown in sorting out guarantees for the banking system or cash will start to dry up by Christmas, National leader John Key said today.
He said yesterday a bipartisan approach was needed to extend the Government's retail bank deposit guarantee scheme to cover wholesale bank deposits.
The Government has guaranteed retail loans in the face of the international financial crisis, creating a $150 billion contingent liability.
Under a wholesale scheme, the government would guarantee money loaned to New Zealand banks by foreign banks, a scheme being established in Australia and in place in other countries.
That would extend the contingent liability to $450 billion.
Mr Key said today that with an election fast approaching and the uncertainty of coalition-forming ahead, some certainty had to be brought to the wholesale guarantee scheme now.
"The wholesale banking scheme does need to be resolved or New Zealand banks will simply have to lend less or charge more for their lending, and that would have wide-scale repercussions for our economy," Mr Key said.
New Zealand banks are largely owned by Australian parent companies and receive much of their funding from them and other overseas sources.
There have been indications that the banks have enough cash to last to Christmas, but Mr Key said this did not tell the whole story.
"I think there is a difference between saying 'do they have enough money to fund their current obligations?' and `will they be forced to slow up their activities?'," Mr Key said.
"I think you will find unless they have some fairly immediate confidence that this is going to be resolved, they will have no option but to slow down their lending."
Mr Key called for greater urgency from politicians and closer co-operation between Australia and New Zealand officials over the design of the scheme.
Finance Minister Michael Cullen was dismissive of Mr Key's remarks.
He said Mr Key's push for a bipartisan approach had lasted about a minute.
Dr Cullen said he was keeping National's finance spokesman, Bill English, in the loop about progress and yesterday gave him a Treasury paper looking at the issue.
He said negotiating with Australia was only part of answer.
"I'm very happy to listen to comments or feedback from Mr English, he seemed to be happy yesterday with the pace with which we were proceeding," Dr Cullen said.
Dr Cullen said Mr Key seemed to be calling for "some sort of panicked reaction."
Mr Key agreed with Dr Cullen about looking carefully at the issues around transferring the risk from Australian shareholders to the taxpayer.
Mr Key said on general economic issues New Zealanders had to decided who better understood the economy and how to deal with the problems it faced.
"I don't think Helen Clark has had any conversations with the banks as far I understand it in the last week or so. I don't know whether she understands this stuff very well, but there is no indication she does."
Miss Clark said it was important the issues were analysed extremely carefully and she believed that was happening.
She said she was prime minister, and had a very competent finance minister to maintain necessary contacts.
She said she was not going to pick up the phone and start talking to banks.
- NZPA
