The consultation paper covers proposals for the nine non-core standards including governance, risk management and lending. It follows the RBNZ’s recent consultation on the four core standards – capital, liquidity, disclosure and the Depositor
Compensation Scheme – which are the standards existing deposit takers will be licensed against.
Alongside the proposed policy for the non-core standards, the RBNZ is seeking feedback on its initial policy direction on the new crisis management regime in the Deposit Takers Act (DTA).
If a deposit taker gets into distress or fails, an effective crisis management regime is essential for minimising the serious economic damage and costs that can result, as we saw in the Global Financial Crisis, says Christian Hawkesby, Reserve Bank deputy governor.
“These regimes also support a competitive and dynamic financial system where deposit takers can enter and exit efficiently.
“The DTA modernises New Zealand’s crisis management framework by formalising our role as the resolution authority, establishing a Depositor Compensation Scheme (DCS), and providing an additional suite of powers and tools to deal with entities in distress.”
The compensation scheme is the most contentious part of the DTA. Under the scheme, to be introduced mid next year, the first $100,000 of an individual or business’s bank savings will be insured.
Deposit takers – banks, building societies, credit unions and deposit taking finance companies – will pay levies into a fund administered by the RBNZ, and topped up by the Crown if necessary, to be used to compensate savers if their business fails.
Treasury says a target fund of 0.8%, or about $1 billion, of protected deposits will be set. The fund will be built up over 20 years to spread the cost equitably over a large cohort of deposit takers.
The devil is in the details, however.
While the scheme, the RBNZ says, is tailored to promote financial stability and a sustainable, productive economy that is competitive, efficient and inclusive, there have been howls of protest from deposit takers over how levies to pay for the insurance will be proportioned out between the big banks and much smaller non-bank finance companies.
The RBNZ says the levies should be risk-based, but smaller banks and non-bank deposit takers say on that basis the levies will hit them much harder than the big Australian-owned banks.
The Commerce Commission says any levies should be flat – based on a deposit takers’ insured deposits – and then reassessed.
Finance Minister Nicola Willis will decide by the end of the year how to distribute the costs of the insurance scheme across all deposit takers.
Hawkesby says deposit takers play a critical role in the financial system by providing products and services which are essential to New Zealanders and the broader economy.
“The DTA standards give us a significant opportunity to create a coherent prudential framework that is more closely aligned with international best practice.”
He says from 2028, the standards will set the minimum requirements that licensed deposit takers must comply with.
The RBNZ wants to hear from stakeholders on both the standards and the crisis management regime in the DTA.
This work will ultimately result in the issue of standards and the publication of a Statement of Approach to Resolution.
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