KEY POINTS:
In days gone by savers could always rely on the bank as a safe place to park money.
Most took bank safety for granted. Their first thought was which bank offered the best rate and what options were there to lift returns.
Many bank-type investors turned to finance companies. Few questioned the safety of either banks or finance companies.
With more than $3.8 billion tied up or lost in 34 frozen or dying finance companies, investors are much more risk averse. Their first port of call was the banks.
The amount saved in term deposits rose $13.3b to $86.759b in the year to June 30, data from bank disclosure statements shows. Only $2b of that was transferred from finance companies to banks. The rest is from increased savings and from money pulled out of sharemarket funds and property sales.
But the turmoil in the banking systems of Europe and the United States is forcing savers throughout the world to question the safety of their banks and to demand something most have not considered - bank deposit insurance.
The speed of the loss of trust and the rise of the savings sceptic has been frightening for bank executives and regulators alike.
Until now, almost all developed countries have had bank deposit insurance. Australia and New Zealand have been the odd ones out.
The public theory was we didn't need it because our banks were sound and because regulators and governments didn't want to guarantee savings and create a "moral hazard" where lenders thought they could get away with crazy lending without fear or consequence.
The unspoken theory was that our banks were too big and our payments system too concentrated in the hands of just four players that any government on either side of the Tasman could not afford to let one bank fail.
But "trust us" doesn't cut it anymore in a global investment climate driven by fear and panic.
I agree with the Reserve Bank that our banks are sound, but reassurances from regulators and commentators are no protection in a bank run. I don't expect one, but a little insurance does no harm.
Rightly, our savers are now asking why our banks are so much safer than ones overseas and therefore don't need deposit insurance.
Events in Europe and the US have reinforced the need for deposit insurance here - it raises the risk of a flight to protected accounts elsewhere - as savers hunting some protection move money to countries with insurance or guarantees.
In June, Australia's government announced a plan for a "financial claims scheme" which would protect the first A$20,000 ($22,500) in any bank account deposit in any failure.
This changes the landscape for New Zealand's regulators and the Government. Many Kiwi savers have Australian bank accounts from their days working in Australia. Almost all savers are arms of Australian banks, so it becomes much less of a drama to move money around accounts.
New Zealand must act now in a bi-partisan way to announce a Government-backed protection for bank deposits of up to $100,000.
The experience in the Northern Hemisphere shows that more is better in any government's attempts to ensure trust in banks.
