New law will ensure more security for bank deposits from next year

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New Zealanders will finally get protection for bank deposits after Parliament passed the Deposit Takers Bill.

It meant if a deposit taker, such as a bank, building society or finance company failed, eligible depositors would have up to $100,000 of their savings protected.

It was the final piece of legislation in the government’s review of the Reserve Bank of New Zealand Act.

The compensation scheme would be funded by a yet to be announced industry levy set by the Finance Minister, with the scheme set to come in by late next year.

Christian Hawkesby
Photo: RNZ / Reserve Bank

Reserve Bank deputy governor Christian Hawkesby said the bill brought New Zealand in line with other developed nations.

“We were just one country along with Israel across the OECD not to have a deposit compensation scheme,” he said.

The scheme is expected to protect about 93 percent of depositors in the country.

Hawkesby said the compensation scheme would mainly benefit retail operators, who would receive “trust and confidence” in the banking system.

That meant many corporates and businesses would be left out.

“Institutional depositors and corporate depositors are going to be more sophisticated and are going to have a broader range of ways that they can manage risk,” Hawkesby said.

“[Retail depositors] have less of an information set than large depositors and they need that support and confidence that they have a strong regulatory environment that their deposit is functioning within, and a strong regulator with all the tools required,” he said.

Finance Minister Grant Robertson said the Reserve Bank would also have stronger and a broader range of supervisory and enforcement powers.

“Overall, the Bill considerably strengthens New Zealand’s financial system safety net and contributes to a robust framework of protections for depositors,” Robertson said.