Extended deposit guarantee scheme law passed

The Government has passed legislation extending the Retail Deposit Guarantee Scheme and changing some of its terms and conditions.

The bill, which extends the scheme to December 31, 2011, was passed unanimously in Parliament today.

"The passing of the new scheme into law provides certainty for depositors, financial institutions and taxpayers," Finance Minister Bill English says.

"Depositors and institutions have more than a year of advance notice before the scheme changes and then a further 14 months under the extended scheme until the Crown guarantee ends on December 31, 2011.

The changes after October 12, 2010 are:

* Fees will be changed to reflect institutions' risk profile and to bring them closer to 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 $500,000 per depositor per institution and eligible non-bank deposits to a maximum $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 won't be eligible despite being included in the current scheme.

* 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 October 12, 2010. Whether or not they are covered beyond that date will depend upon whether their institution joins the new scheme, which is voluntary.

The changes are consistent with new Reserve Bank rules for non-bank deposit takers. Under those rules all institutions with deposits over $20 million will need to obtain a credit rating by March 1, 2010.

Check out the latest rates at www.depositrates.co.nz

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