OECD notes Kiwi bank depositors get protection

Tuesday, February 8th 2022, 11:52AM

The money Kiwis put into banks is getting better protection, according to the OECD.

This is despite its view that a pending deposit insurance scheme is tepid by world standards.

The OECD's report, launched last week, gave the Government good marks on Covid, but bad marks on inflation and housing costs.

It then went on to discuss the safety of the banking system, which is universally seen as essential for the survival of an economy as a whole.

To improve banking security, the Government will over the next two years enact an insurance scheme as part of a new law, the Deposit Takers Bill.

This will guarantee compensation of up to $100,000 per depositor in case a bank or other deposit taker goes insolvent.

The money would be paid from a Deposit Compensation Scheme, which would be funded by a levy on deposit takers.

Commenting on this, the OECD said the New Zealand scheme would still be comparatively limited, with far greater protection for depositors in the United States, Australia and most European nations.

Even so, it was a good idea, and its limitations were more than made up for by banks holding more money in reserve here than in many other countries.

“Planned deposit insurance coverage is up to $100 000 per depositor, per institution,” the OECD wrote.

“This is a big improvement on the current absence of such insurance. It would still be lower than in many other countries, but New Zealand’s comparatively high capital ratios offer greater protection.”

This last comment refers to a process of raising so-called capital adequacy ratios to among the highest in the developed world.

This process began in 2019 and is due to be completed by 2028. It would make sure that banks have enough money in reserve to cope with a one in 200 year financial crisis

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