Government deposit guarantee scheme to be extended

The Government guarantee on lending deposits is to be extended.

Finance Minister Bill English has stated that the Government will extend the Retail Deposit Guarantee Scheme and change some of its terms and conditions.

The current scheme ends on 12 October 2010, and the new scheme will start on 13 October 2010 and end on 31 December 2011.

"The Retail Deposit Guarantee Scheme was introduced as a direct response to international financial market turbulence. Immediate concerns about the stability of the financial system are now abating," Mr English says.

"The planned extension will help maintain confidence in New Zealand's financial institutions while achieving an orderly exit from the scheme."

Depositors and institutions have more than one year's advance notice before the scheme changes. They then have a further 14 months under the extended scheme.

The changes that will take effect after 12 October 2010 are:

• Fees paid by participating institutions will be changed to reflect their risk profile. The fees are set by the Minister of Finance, and are intended to approximately match longer term normal market pricing. Thresholds in the current scheme will be discontinued and the fees will apply to all funds in the new scheme.

• Eligible bank deposits will be covered up to a maximum of $500,000 per depositor per institution and eligible non-bank deposits to a maximum of $250,000 per depositor per institution. The maximum in the current scheme is $1 million per depositor per institution.

• Deposit-taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating, or no rating, will no longer be eligible.

• Collective Investment Schemes won't be eligible for the new scheme.

All depositors currently benefiting from a Crown guarantee will have their deposits covered until 12 October 2010. Whether or not they are covered after that will depend on whether their institution voluntarily joins the new scheme.

A list of institutions covered by the scheme beyond 12 October 2010 will be available on the Treasury website once applications have been processed.

The level of fees, which will vary by credit rating and type or organisation, is set out in the table below.

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