RBNZ says there's a moral hazard risk with deposit guarantee

You're right. There is a moral hazard when you provide a blanket guarantee,” Orr said in answer to a question.

That's one of the reasons why New Zealand “has been one of the last countries on this earth” to institute such a guarantee.

The scheme is currently scheduled to take effect from mid-2025 and the RBNZ is still consulting on how it will apply proportionality and what standards institutions will need to meet.

But the ability of new, higher-risk institutions coming into NZ and winning deposits “is extremely low” because they and the existing non-bank institutions in the country will have to comply with the new prudential requirements RBNZ is imposing.

The RBNZ won't be “breathing ongoing life into” institutions that don't comply, Orr said.

RBNZ will also be “making explicit what the government guarantee is or isn't.”

The scheme will guarantee deposits at each institution up to a maximum $100,000 and will be financed through levying financial institutions.

RBNZ's latest financial stability report said non-bank deposit takers (NBDTs) include building societies, credit unions and deposit-taking finance companies.

“With total lending at around $2.2 billion, the sector is small relative to the banking sector in total lending but provides services to a relatively large number of customers,” the FSR said.

As with the banks, new lending by non-banks, particularly by credit unions and building societies, has slowed in the last 18 months.

“This has been driven by higher interest rates, subdued demand for credit and an uncertain economic outlook,” it said.

“As a whole, the NBDT sector continues to build capital buffers and improved efficiency,” it said. The resilence of firms among the NBDTs varies.

“However, some NBDTs continue to face challenges from the softening economic environment and their lack of scale.”

This month, RBNZ plans to consult on four standards for capital, liquidity, disclosure and the depositor compensation scheme and in July it plans to consult on outsourcing, lending, related party exposures, governance, risk management, operational risk, open-bank resolution, general restrictions and branches.

“All standards will apply to both new and existing deposit takers,” the FSR said.