The New Zealand and Australian Governments moved in tandem yesterday to shore up investor confidence as the IMF warned the global economy was on the brink of collapse.
Prime Minister Helen Clark and Australian Prime Minister Kevin Rudd have introduced retail deposit guarantee schemes, matching other schemes being implemented around the world.
In New Zealand, the scheme will cover all retail deposits of participating New Zealand-registered banks and retail deposits by locals in non-bank, deposit-taking entities. These include building societies, credit unions and deposit-taking finance companies.
Miss Clark said New Zealand, while resilient, was not immune to the challenges facing the global economy.
"A curtain is being drawn on the era of the freewheeling unregulated money traders and financiers whose greed has shaken the international financial system to its very core."
Finance Minister Michael Cullen said the opt-in scheme would be in the form of a bilateral contractual agreement between the Crown and individual institutions which took up the guarantee.
The scheme would be free for institutions with total retail deposits of less than $5 billion.
A fee of 0.1% a year would be charged on total deposits above $5 billion. A bank with $20 billion in retail deposits would pay $15 million in fees a year.
Dr Cullen said the Government was offering the deposit guarantee to address the current situation of international financial turbulence.
"It will be a two-year term in the first instance. This will give time to see how well international financial markets stabilise in the months ahead."
In Australia, Mr Rudd said his government would guarantee all deposits being held in Australian financial institutions for the next three years.
The blanket guarantee was one part of a three-pronged plan to further safeguard Australians from the fallout from the global financial crisis, he said.
All term wholesale funding by Australian banks operating in international markets would also be guaranteed.
The Australian Government would also put another $A4 billion ($NZ4.46 billion) into residential-backed securities to help shore up the Australian mortgage market.
Miss Clark made the announcement of the deposit scheme at the Labour Party's election campaign launch in Auckland.
"Our world is experiencing the worst financial crisis since the 1930s. The Labour-led Government is committed to doing what is needed to keep the New Zealand banking system sound, and the economy on a growth path.
"To that end, the Government has agreed to implement a deposit-guarantee scheme which will provide New Zealand depositors with additional confidence."
National Party leader John Key welcomed the move but was probably caught unawares by the announcement, made while he was launching National's election campaign in Auckland at the same time.
"As I have said on several occasions in recent days, the National Party will support measures to protect the stability of our financial markets, and I specifically identified a deposit guarantee scheme as one such measure we would support."
While New Zealand's banking system continued to be sound, yesterday's announcement was an inevitable and sensible step.
National Party finance spokesman Bill English would be briefed by the Reserve Bank today, and Mr Key expected the Government to set up a fully bipartisan process for thrashing out the details.
However, the Reserve Bank released a detailed programme of the scheme on its website last night.
Miss Clark said co-ordinated international action would be needed to ensure that the "greed merchants" did not again get the chance to destroy the lives of working people and their families.
There was no precedent for the scale of what was happening in international markets, nor for the scale of the responses being made in those world capitals where financial services made a significant contribution to the size of the economy.
No-one could have envisaged even six weeks ago the United States Government's $US700 billion ($NZ1.2 billion) bail-out or Britain's part nationalisation of major banks.
Both the Government and the Reserve Bank were committed to doing what needed to be done to keep the New Zealand system safe, Miss Clark said.
If re-elected, Miss Clark said Labour would probably introduce a mini-budget in December, setting out the steps to be taken to reignite the economy.
How it works
• The Crown will guarantee people who have deposits with institutions in the scheme. It was introduced under the Public Finance Act.
• For New Zealand incorporated registered banks, deposits from both residents and non-residents will be covered.
• For non-bank deposit takers and for the unincorporated branches of overseas entities, only deposits of New Zealand citizens and New Zealand tax residents will be covered. This will include building societies, credit unions and deposit-taking finance companies.
• Deposit liabilities will be covered regardless of the currency in which they are denominated.
• The guarantee will be offered for two years.
• The Crown will make the payment in the event of the liquidation of a guaranteed financial institution, if its assets are shown to be insufficient to meet the liabilities covered by the guarantee.
