National leaves Kiwi savers the most vulnerable in OECD

News last week that Israel’s Finance Minister will insure savers’ bank deposits means New Zealand will be left as the only country in the OECD that has no deposit insurance to protect savers’ funds should a bank fail.

Most Kiwis don’t know that their bank savings can be used to help bail out their bank should it fail. The technical term for it is a “haircut” and National introduced this in 2013 as part of their Open Bank Resolution.

Savers queue to withdraw their funds from a failed bank in the UK.
Savers queue to withdraw their funds from a failed bank in the UK in 2007.

Every other country in the OECD protects savers’ deposits with deposit insurance. Australians saving with the parent banks of ANZ, BNZ, ASB, or Westpac all have their deposits guaranteed up to $250,000. Kiwis saving with these same banks get no protection whatsoever.

Savers in New Zealand deserve the same protections savers have in the rest of the developed world. The OECD agrees.

Finance Minister Bill English ruled out deposit insurance in 2011 saying that it “is difficult to price and blunts incentives for both financial institutions and depositors to monitor and manage risks properly. No other developed country has the same problems.

On blunting incentives, otherwise known as ‘moral hazard’, Bill English can’t seriously expect everyday savers to analyse the loan books of banks to assess their credit risk when they open their accounts, let alone do this on a six-monthly basis.

Where I do agree with Bill English is when it comes to large investors. They should be required to assess the risk of their investments, hence the cap on deposit protection. We think $100,000 is a fair level of protection for New Zealand savers.

What would deposit insurance mean for savers? Depending on how the scheme is designed, banks would to pay a small regular premium (based on their credit rating) to fund an insurance pool that’s used to protect small depositors should it fail. This cost could be passed on to savers themselves as a $5-10 yearly fee on their accounts. It’s a small price to pay to know that your savings are safe no matter what.


8 Comments Posted

  1. Thank you for this article on OBR James. The OBR is a draconian and scary prospect. Why is it the savers are targetted and not borrowers? The other thing is that these banks are making $millions in profits and the OBR does not encourage them to be prudent in their lending because they know that the poor old savers will “bail them out” if the worst happens in this country. Why is this National Government so far out of step with the rest of the OECD countries in not protecting savers’ funds? Why did they not institute a deposit insurance scheme which I am sure savers like me would not mind paying a small annual fee for? I am of the generation which was urged to “save for your retirement”. Now with appallingly low interest rates and the OBR, it seems as though everything is stacked against savers in this country. I am sure many savers are unaware of OBR or its implications and I feel there needs to be a concerted effort to educate and inform. This hopefully would get sufficient numbers of the public angry enough to force Government change.

  2. Hello James this particular article really bothers me, myself and my partner are edging closer to getting our first house (a miracle for a young couple in this day in age I know) I am concerned however because my only hope of owning a house is to use my kiwisaver as my and my partners combined deposit for a house im now shit scared they are going to pull yet another rug from under us, not only are they contemplating a earnings cap on mortgages but my kiwisaver which I have been contributing towards for the past ten years is at risk! Are they so blind as to not see the damage they have and continue to do or are they just genuinely bad people they need to go are there kiwisaver schemes that I can join to prevent this or are all of them at risk?

    Keep up good the good fight

    Sincerely Kevin Pivac

  3. NZ Government has a bad record of handling of funds, the fact our country has terrible debt now well over 100 billion which has happened on the the Bill English watch shows they are not capable of handling NZers money.
    Look at the ACC money they lost in a country that was in terrible financial trouble at the time they invested( gave it away)

  4. What a liar English. The only reason English doesn’t want this insurance, is so that the average income earners can’t claim insurance on their personal funds when Key decides to rip the economy out of New Zealand when Key is no longer in power. Just as Key ripped Ireland of their economy, and just as Muldoon did when he was voted out. See the pattern folks?

  5. Maybe the deposit insurance could come out of our high bank fees which are also pretty unique to us.

  6. What would the total amount of money be covered if there was such a scheme? (3 billion, 30 billion, …. ?)

    And who would hold these funds? Would it be the government or a private corporation?

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