Our view on the unfairness of the Reserve Bank's proposed "haircut" of bank deposits in the event of a registered bank failure in this country has struck a chord. A number of you have commented about the move by email and online.
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Apart from the obvious unfairness of the policy, the other major complaint was about the lack of consultation. As one member said ... "it is all very well, but what can depositors do about it? Write to their MP, have a referendum. We didn't vote for this to happen. Probably shows that people should keep their money in the top 4 banks that are too big to fail".
This raises one of the major points we covered in our submission to the Reserve Bank: the lack of targeted consultation with the public and consumers. The catchily-titled "Open Bank Resolution Pre-positioning Requirements Policy" (OBR) doesn't sound like it contains a major change to the rights of ordinary bank depositors.
It appears from information in the Reserve Bank's regulatory impact statement on the OBR that it had a range of mechanisms for consulting with banks. It just overlooked consulting that other part of the banking industry – the ordinary bank depositors who provide a considerable part of any bank's funds.
The Reserve Bank could counter that New Zealand doesn't have a deposit guarantee scheme. So it could be argued the OBR will make depositors slightly better off than they are currently. Of course, there has always been an implicit government guarantee of the banking system – the too-big-to-fail syndrome. And this became explicit following the global financial crisis in 2008. Other countries have retained their deposit guarantee schemes as the crisis has wound down. We haven't.
What the Reserve Bank is proposing will have a disproportionate effect on low-income people because they're more dependent on their daily accounts for paying for necessities such as food, housing and energy bills.
We urge the Reserve Bank and the government to draw breath on the OBR. This would give time to consult properly with the public and more fully assess the effects of the OBR. A deposit guarantee scheme set at a realistic level would provide much greater certainty and protection for ordinary savers.
About the author
David Naulls is Consumer's deputy CEO and the editor of Consumer magazine.
David works closely with the research and testing team to ensure the quality of all articles published by Consumer NZ. He has previously been a research writer and contract books writer at Consumer. Before returning as Content Editor, he was a freelance writer and editor for 25 years. David has post-graduate qualifications in journalism and political philosophy.
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