You have just entered the world of Open Bank Resolution (OBR).
It may come as a surprise that the Reserve Bank already has the power to freeze bank deposits. The problem for the central bank has been a lack of technical infrastructure to implement the policy, should the need arise. The bank said last week that it was in discussion with the banks on "pre-positioning" their systems for OBR.
The policy's proponents say it beats the alternative, which potentially involves depositors losing access to their entire savings, not just a proportion of them, if a bank's doors are shut for good.
They say the key thing about OBR is that Joe Public would gain almost immediate access to at least a part of his savings if the bank failed. It would also allow the bank to keep its doors open, and lessen the chances of the taxpayer having to step in to prop it up.
The 1997 Asian financial crisis prompted the Reserve Bank to come up with a tool to enable the failure of a large bank to be managed without many of the disruptions and stresses to the banking system and economy that would be caused by conventional failure regimes such as liquidation.
While the failure of any firm would be disruptive to its direct stakeholders, in most cases it does not create significant problems for the wider economy, with the failed firm simply passing into liquidation or being acquired by a stronger rival.
"However, a bank failure can have more wide-reaching implications for the economy than the failure of most other firms, particularly if the bank is large," the Reserve Bank said in its latest quarterly bulletin.
"The primary objective of OBR is to ensure the continuation of the core banking functions of the distressed bank - in a manner that limits the cost to the taxpayer - until its future can be resolved."
The absence of viable solutions puts pressure on governments to provide bailouts to distressed banks, which can result in large fiscal costs and can create an expectation of public support.
The resulting "moral hazard" can damage incentives for bank management to operate in a prudent manner, and reduce the incentive for creditors and depositors to scrutinise their bank's affairs.
"One of the advantages of the OBR is that it reduces the moral hazard that is created when there is an implicit assumption that public support will be provided to troubled banks."
But the banks are understandably cautious.
"You really have to wait until the rest of the world also determines how it deals with bank failures," Westpac NZ chief executive George Frazis said.
"If you are not aligned you can get yourself unstuck. Our view is continue consulting until we see what comes out."
It was a similar message from ANZ New Zealand's chief executive David Hisco, who said the ANZ was still "working through the issues" with the Reserve Bank.
"We understand the logic behind it. We just need to make sure that New Zealand is not disadvantaged in relation to other countries, such as Australia," he said.
"Investment capital is mobile. If New Zealand becomes a place that is harder to invest in than other countries, then it may work against us."
Massey University's Centre for Banking Studies senior lecturer David Tripe said much of the discussion around OBR came down to how it would be implemented.
"The general idea of having a scheme to get banks up and running relatively soon after one of them gets into trouble is a good thing," he said
"While the idea of having deposits frozen would come as a shock to some, the Reserve Bank would argue it has always had that right but not the technical ability to do so. What this has tended to mean is that when a bank gets into trouble, all they can do is close it down.
"My view is that it is appropriate for a government to have a policy for dealing with failed banks."
One of the main themes to emerge from the collapse of the New Zealand finance company sector was that more policy could have been in place.
The Government's response to this crisis was to introduce the retail deposit guarantee scheme, which involved standing behind $133 billion in investor funds.
As it turned out, nine finance companies in the scheme failed, resulting in a $2 billion "haircut" for the taxpayer.
"When the balloon went it up, it was a matter of what do we do now? It became a matter of making up policy on the fly," Tripe said.
"That is, in essence, the weakness and the problem."
