KEY POINTS:
National Party leader John Key has welcomed changes to the bank deposit guarantee scheme which includes making finance companies pay a fee.
Prime Minister Helen Clark announced the $150 billion guarantee for retail bank deposits on Sunday and the Reserve Bank of New Zealand (RBNZ) and Treasury yesterday tweaked the scheme.
The scheme was to be free for institutions with total retail deposits under $5b with a fee of 10 basis points per annum charged on total deposits above $5b.
Critics said that meant finance companies would get a free ride and also that the lack of a wholesale capital guarantee put New Zealand banks at a disadvantage in international markets.
RBNZ Governor Alan Bollard and acting Treasury secretary Peter Bushnell said in a joint statement that a fee of 300 basis points per annum would now be charged monthly to finance companies rated below BB or unrated.
Mr Key today said the changes made sense.
"The way it was originally proposed any costs of the scheme were simply going on the larger institutions and arguably some of the sounder institutions on a relative pecking order," he said on Radio New Zealand.
"So I think putting in some criteria will make sense. You don't want a ridiculous situation where people are taking funds out of a commercial bank solely to put them into a much smaller entity - maybe a finance company - because they can get a higher return but ultimately have a lending regime that's not as sound."
Finance Minister Michael Cullen today said he did not think the changes, just two days after the scheme was announced, would cause too much confusion.
If people wondered whether their deposits in finance companies would be covered they should check with their financial adviser.
However, he said the bulk of New Zealand deposits were held by banks, most of which had already signed up to the scheme.
Dr Bollard yesterday said a deed for non-bank deposit takers taking part in the scheme would limit potential to strip out funds through dividend payments or related party transactions.
Non bank deposit takers would also face increased reporting requirements and the Crown could appoint an inspector. Personal undertakings would be required of directors.
As building societies and credit unions issued subordinated debt the deed would ensure deposits relating to them were covered.
Deposits in New Zealand branches of overseas banks placed by non-residents would be covered but with limits imposed.
New entrants who were either not in existence or not eligible on October 12 could enter the scheme but needed to have a BBB minus or better credit rating.
The scheme is an opt-in scheme and takes the form of a bilateral contractual agreement between the Crown and the individual institutions which take up the guarantee.
A bank with $20 billion in retail deposits would pay $15 million in fees per annum.
- NZPA
