Comment

ecently an important government decision slipped by all but totally ignored by a media which seem to think that murders, court cases, world mayhem, government glitches and Hollywood celebrities are more important.

I refer to the decision of the Government to go with the Reserve Bank’s Open Bank Resolution (OBR) policy.
OBR does not to insist that banks operating in New Zealand carry some version of a deposit insurance scheme to protect its customers in case of bank failure. Rather, in the case of a bank failing money would be taken from depositor’s accounts to make up any shortfall. I.E the Cyprus solution.

The government’s given reason is that it was considered that such an insurance would be too expensive for the banks, and that having such a cover would encourage bank executives to take what would normally be considered unacceptable risks. Would knowing that depositors were providing the same cover not similarly encourage executive recklessness?

There is probably a general perception that New Zealand banks are very stable, they simply don’t fail. However this is incorrect, the government had to bail out the BNZ in he late 1980s and the Development Finance Bank in 1989. And today, financially, things are even more uncertain than they were back then.

Banks in the U.S.A., European countries, Australia and Canada are required to carry customer protection insurance. Even places such as Mexico, Nigeria and Afghanistan have such insurance – why not New Zealand?

This new risk to bank customers of, to use the current term, ‘a haircut’ may not be a great problem for those running day to day accounts with small balances. However money invested as a term deposit is another matter.

So called ‘middle income’ retirees, having been burned by the investment houses collapses, have turned to bank term deposits which while offering only minimal interest were seen as at least being a safe place for their money.

These people’s money has been saved up over a working life to ensure a worry free old age. Finding that money deposited in a bank may not necessarily be so safe is disconcerting, to say the least.
Is there no safe investment offering a reliable, reasonable rate of return? In other countries there are local bond funds which offer a fair return while spreading the risk, or international bond funds hedged into local currency. There doesn’t seem to be anything comparable in on offer New Zealand, I wonder why not?
Mike Beckett