Richard Moore: Our savings aren't safe

Isn't what is happening in Cyprus an absolute disgrace?

People locked out from taking their own money out of a bank, the government arbitrarily ripping money out of people's accounts to pay off debt and, when they were able, customers could only remove limited daily amounts from the institution.

Watching the scenes outside Laiki Bank and Bank of Cyprus, you had to feel for those being right royally rogered by their financially inept banks and political leaders.

And, as you watched the Cypriots stoically putting up with the daylight robbery, you had a feeling that all the governments in Europe were monitoring their reaction keenly - just in case they need to introduce the same extreme measures themselves.

Thank goodness that could never happen here, I muttered, knowing the New Zealand Government has bailed out stupid private finance companies in the recent past and there is the Bank Guarantee Scheme.

The BGS is where the Government guaranteed all retail deposits of New Zealand-registered banks as well as building societies, credit unions and deposit-taking finance companies.

But, while researching this column, I discovered to my surprise that the Crown's Extended Retail Deposit Guarantee Scheme ended on December 31, 2011. Either I missed the announcement, or it was done quietly, or maybe Prime Minister John Key forgot to tell us. Bugger. So much for government protecting the little guy. Idiots investing in dodgy it's-too-good-to-be-true schemes can be bailed out to the tune of $1 billion, but not those of us who put our dosh into "safe" institutions.

Well, I thought, at least the Government here couldn't do what was done to Cypriot bank customers.

Could it? In a short phrase - yes, it could. And the mechanisms are already in place, with the Reserve Bank ready to act should any of New Zealand's banks fail.

If a bank here was to get financially shaky the Reserve Bank could step in and freeze every asset and cent it has. The bank would be shut for a day and then would reopen for limited business.

Depositors, that's you and me, would have access to most of our funds - however, a portion would be frozen. Just how much depends upon the size of the losses facing the institution - the deeper the hole, the bigger the percentage of our money will be frozen.

Anyway, there are always creditors, who are more secure than others, and top of the list will be the taxman.

After he escapes the pain, the hurt starts on lesser mortals. Unsecured creditors being large international financial institutions, all the way down to we lowly customers with cheque and savings accounts, and term deposits.

To quote from a paper outlining the Reserve Bank's Open Bank Resolution policy: "Shareholders are the first to bear the bank's losses, followed by its subordinated debt holders. If there are any remaining losses, these are then allocated to the bank's unsecured creditors, including its depositors."

And: "A proportion of each unsecured creditor's funds would be frozen ... based on a conservative assessment of the potential for losses by the failed bank. This estimate would include a suitable buffer to allow for the inevitable uncertainty around the final size of any loss."

Now the way the Reserve Bank views depositors - that's you and me - and their unsecured standing is thus: "Each has freely invested in a private institution and has enjoyed a return on that investment whilst accepting the risks associated with the investment."

Surely the people of the Reserve Bank know that many of us can't get paid unless our wages or salaries go into a bank account? It's not as if we delight in dealing with the institutions, getting hit with bank fees, and earning a paltry interest rate isn't "enjoyable" - and neither have we accepted "risks", because banks don't advertise any potential dangers.

In these uncertain financial times it is up to our Government to guarantee our savings - even if they put a cap on it like $100,000 per account - and to rework the Open Bank Resolution policy so that no portion of an individual's bank account is frozen.

After all, we have already paid taxes on the money going into our accounts - and pay tax on any interest earned - so keep your greedy eyes off our savings!

richard@richardmoore.com

Richard Moore is an award-winning Western Bay journalist.