KEY POINTS:
The National Party leadership will be briefed before any announcements on changes to the bank deposit guarantee scheme, says Finance Minister Michael Cullen.
National leader John Key said he was unhappy he had not been briefed before the guarantee announcement, which Prime Minister Helen Clark made at Labour's election campaign launch on Sunday.
Mr Key said he had been told by Reserve Bank Governor Alan Bollard that this was at the discretion of the Government.
Dr Cullen said he had to move quickly because he had been working with Australian ministers and needed to make the announcement at the same time as they did about their own guarantee scheme.
Parts of the scheme had yet to be completed.
"I am very happy to have further briefings for Mr Key and [National's finance spokesman Bill] English and other party leaders who want briefings," Dr Cullen said.
"There are clearly issues ongoing that need to be thought through, as I think both Mr English and I recognise, and we are not very far apart in our views on these matters."
Mr English and others have queried why the New Zealand guarantee does not go as far as the Australian scheme and cover intra-bank loans and wholesale deposits.
Dr Cullen indicated this was one area being worked on.
To offer an across-the-board guarantee to intra-bank loans and wholesale deposits would mean increasing the Government liability from $150 billion to $450 billion.
This would mean taking on the liabilities of the Australian parent companies and the Government was not willing to take on all the risk of the banks' overseas owners.
"There is no need for us to rush into any decisions on those matters because the banks are not in a position where they need to be renewing those credit lines," Dr Cullen said.
Time would be taken to sort through the issues and see what the Australians' final scheme looked like.
Dr Cullen said he had to act quickly because the risk was that if the banks and financial institutions had opened on Monday with no guarantee in place, then people might have started moving their cash overseas.
"I am not saying there would have been a vast flood, but we simply didn't know."
National has endorsed the scheme in general, but Mr English said its design could lead to foreign banks being unwilling to lend their money into the New Zealand system.
Fears have also been raised that failing finance companies could try to usethe scheme to lever themselves out oftrouble.
Mr English said managing the scheme in a way that did not encourage smaller finance companies to take extra risks or use it to try to get themselves out of trouble would be difficult.
There are also questions about what would happen to those financial institutions that did not receive a Government guarantee.
Asked if this would be the kiss of death for such companies, Dr Cullen said that he had no comment to make on the issue.
- NZPA
