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Govt introduces bank deposit guarantee scheme

Sunday 12th October 2008

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New Zealand has followed Australia in introducing a guarantee scheme for bank deposits to try to mitigate the effects of financial market turbulence.

Finance Minister Michael Cullen will use his powers under the Public Finance Act to introduce an opt-in retail deposit guarantee scheme, he said in a statement emailed to BusinessWire.

“We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions,” Cullen said.

The announcement came after finance chiefs from the Group of Seven nations meeting in Washington vowed to “take all necessary steps to unfreeze credit and money markets” and prevent major banks from collapsing. Australia’s government is introducing a scheme this week to guarantee bank deposits up to A$20,000.

New Zealand’s will be an opt-in scheme, covering retail deposits from banks, building societies, credit unions and deposit-taking finance companies who chose to participate.

The scheme will be free for institutions with total retail deposits under $5 billion and large firms will be charged 10 basis points a year. That means a bank with $20 billion in retail deposits would pay $15 million in annual fees, according to Cullen’s statement.

The guarantee is for two years, giving finance markets time to stabilize, he said.

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