Bank guarantee scheme will end in April, says English

Finance Minister Bill English. Photo / Rotorua Daily Post

The Government's wholesale funding guarantee, introduced during the 2008 global banking crisis, will be shut down at the end of next month, says Finance Minister Bill English.

The wholesale funding facility was set up in November 2008 when the liquidity crisis hit global credit markets.

Speaking at a meeting in Auckland today, English said the scheme had helped the banks access funding during the crisis, but international conditions had now improved.

"New Zealand banks are now raising funds without using the guarantee, which was always envisaged as a temporary measure for extraordinary times," he said.

Today's announcement follows confirmation last month that the Australian wholesale funding guarantee will end on March 31. Other countries have also ended their guarantee schemes or are in the process of doing so.

English said the wholesale guarantee facility was separate from the retail deposit guarantee scheme. No changes are planned for the retail deposit scheme beyond those announced last year, which take effect from 13 October 2010.

Since the wholesale guarantee was set up, 24 guarantee certificates have been issued, covering $10.3 billion of borrowing by banks. The scheme has made no payouts and the Government will receive almost $290 million in fees.

English said that New Zealand's banks were now successfully raising funds in the wholesale market without using the guarantee and the Government did not expect there would be any further use of the facility between now and the end of April.

He said Treasury and the Reserve Bank had consulted with the major New Zealand banks - along with some international investment banks - in recent weeks.

"In general, the feedback was that they were all looking to raise non-guaranteed funds and have no plans to further use the New Zealand wholesale guarantee," said English

See details of the scheme here.