Last week we discussed how the IMF has:
“…recommended the government implement a $10,000 “de minimis” exemption to the current Open Bank Resolution (OBR) scheme (a.k.a. bank depositor haircut scheme).
This would mean that each bank depositor would get $10,000 exempt from the Reserve Bank of New Zealand’s (RBNZ) depositor “haircut” policy if a bank were to fail.”
But we wrote that a $10,000 “de minimis” exemption looks unlikely:
“…Finance Minister Steven Joyce said the government is looking at making some “tweaks” to the current OBR set up. But given the RBNZ has consulted on only a $500 exemption these tweaks may not be that significant.
Significant however is that New Zealand is the only OECD country to not have bank deposit insurance. For example Australia has coverage up to AU$250,000. In the US it is up to US$100,000.
So in the event of a bank failure all your bank deposits are at risk currently. In the future this may change to a small amount not being subjected to a hair cut.”
An interview with the Reserve Bank Deputy Governor this week seems to confirm this viewpoint. That is, if an exemption of a haircut on retail depositors is put in place, it will in all likelihood be very small. (Emphasis added is ours):
“You can’t know the size of the hole that led to a bank failure before the fact. So, it’s hard to promise how much of someone’s deposit will remain accessible.
“You can’t make it too large or it may not be fundable,” Spencer says.
“And it creates a preference – it’s sort of like depositor preference, which the Aussies have. In a failure, depositors [there] are all covered first, whereas in our regime a depositor is just another senior, unsecured creditor standing in line with wholesale creditors as well.”
That’s another thing to remember. Bank depositors are one of a number of sources of bank funding. Some banks have a greater proportion of funding sourced from retail deposits, some less.
“If creditors overall are taking a haircut, but every [retail depositor is] guaranteed $10,000, that means that potentially other creditors have to take a bit more [of a haircut],” Spencer says.
“The government’s not paying this,” he reminds us. “This is not…a deposit insurance or a bail out where the government comes to the party. This is really who gets paid first and who’s front of the queue and how much you get.”
If it comes to it, a small de minimus would be much more manageable. “If it gets too large, it gets more difficult, particularly if you’ve got a bank that is very much retail funded,” Spencer warns.”
So don’t expect there to be too many changes to the existing OBR scheme we reckon. The odds of a $10,000 exemption for retail deposit holders seems pretty slim.
Therefore don’t count on getting back too much of whatever savings you have in a New Zealand bank if it fails.
As we’ve been saying for some years now, “ensure” you “insure” some of whatever wealth you store in New Zealand banks. Hold some wealth insurance – physical gold and silver – the only financial assets that are not also someone else’s liability.