New law aligns New Zealand with most OECD countries offering deposit insurance
The Deposit Takers Bill has recently passed its third reading in Parliament as the third and final piece of legislation in a comprehensive review of the Reserve Bank of New Zealand Act.
The new legislation ensures that New Zealanders' deposits, up to $100,000 in any eligible institution, will be guaranteed if that institution fails. The law will bring all deposit takers, including banks, credit unions, building societies, and finance companies, under a unified regulatory framework. This framework establishes a depositor compensation scheme, safeguarding the funds of eligible depositors.
Finance Minister Grant Robertson hailed the bill's passing as a crucial move that aligns New Zealand with international best practices while addressing a long-standing gap in the country's financial safety net.
"Eligible New Zealanders will be provided economic security if their bank or other deposit-taking institution fails while helping protect the country's financial system and wider economy. The $100,000 limit will fully protect around 93 per cent of depositors," Robertson said.
Moreover, the new legislation grants the Reserve Bank of New Zealand the ability to set standards as the main tool for imposing prudential requirements. It modernises the regulation and supervision of all deposit takers and strengthens New Zealand's crisis management framework. Robertson emphasised that the Reserve Bank will have a stronger and broader range of supervisory and enforcement powers to ensure compliance and avoid breaches.
In the coming months, the Reserve Bank and Treasury will collaborate with banks and other deposit-taking institutions to devise a funding strategy and levy framework for the Depositor Compensation Scheme. The scheme is projected to be operational by the end of 2024.
"Overall, the Bill considerably strengthens New Zealand's financial system safety net and contributes to a robust framework of protections for the depositor," Robertson said.
The Deposit Takers Bill follows the Reserve Bank of New Zealand (Monetary Policy) Amendment Act 2018, which changed the objectives and decision-making process for monetary policy, and the Reserve Bank of New Zealand Act 2021, which dealt with institutional arrangements for the Reserve Bank.
The new law aligns New Zealand with most OECD countries offering deposit insurance. Globally, there are 92 jurisdictions having deposit insurance schemes in place, according to International Deposit Insurance Association.