Latest news with #DepositTakersAct2023
NZ Herald
09-05-2025
- Business
- NZ Herald
Deposit scheme reduces risk, boosts trust
On July 1, New Zealand launches its Depositor Compensation Scheme (DCS), a transformative policy aimed at protecting savers and rebalancing the financial sector. Designed to safeguard up to $100,000 per depositor, per licensed institution, in the event of a bank or deposit-taking institution's failure, the DCS brings New Zealand in line with international standards, particularly those of OECD nations. Brent King, managing director of General Finance, calls this 'a very positive development' for investors and deposit-takers alike. Together with greater access to the Exchange Settlement Account System (ESAS), which enables licensed non-bank deposit takers to settle directly with the Reserve Bank, the DCS reshapes the landscape for smaller financial institutions. Mandated under the Deposit Takers Act 2023, the DCS ensures that if a licensed deposit taker – such as a bank, credit union, building society, or finance company that accepts retail deposits – fails, eligible depositors receive up to $100,000 of their savings quickly. This coverage is per depositor, per licensed deposit taker, and applies to accounts like savings, transaction and term deposits, covering individuals, companies and trusts. Unlike investments such as shares, the scheme focuses solely on deposits, offering automatic protection without requiring registration. 'In simple terms, DCS protects investors, making deposits in companies offering returns more attractive because risk is reduced,' explains King. 'But this only covers the first $100,000, so some investors might spread their money across multiple companies to protect more of their investment.' Funded by levies paid by deposit takers, the DCS builds a reserve over time, with the Reserve Bank of New Zealand (RBNZ) overseeing its management. Should the fund fall short during a crisis, the Government steps in as a backstop – though the long-term goal is industry self-sufficiency. King emphasises its practicality: 'The idea is that protecting a portion of a DCS qualifying investment gives people enough to get through the next stage in the event of a company failure. It's not about making you whole, but ensuring you can pay groceries, rent, or power bills.' Finance company failures are rare but not unheard of. Echoes of Hanover Finance still linger. Lacking the capital access of the 'big four' banks (ANZ, ASB, BNZ and Westpac), smaller or innovative players in the financial sector face greater risk. King describes the DCS as overdue, addressing a long-standing gap in New Zealand's financial system. Previously, the country relied on mechanisms like the Open Bank Resolution (OBR) policy, which could freeze accounts during a bank failure, leaving depositors stranded. 'For example, if your pay was going into a frozen account, things would quickly become very difficult,' King notes. The DCS prevents such scenarios, ensuring liquidity while authorities assess broader solutions. The absence of such a scheme created an implicit assumption that the Government would bail out major banks, tilting the market heavily toward the 'big four'. Smaller players, including General Finance, faced a trust deficit despite offering competitive rates. The DCS changes this dynamic. 'It may not entirely level the playing field, but it tilts it toward smaller finance companies seeking to innovate and compete,' King says. 'Investors can now place money with downside risk of basically zero for the protected amount.' Bank failures are erratic, often tied to rare events like the Global Financial Crisis, occurring roughly every 15–17 years. The RBNZ is still refining the levy system, which deposit takers like General Finance will fund to build the DCS reserve. The DCS dovetails with other RBNZ developments, adds King, including ESAS, which enables direct settlements with the Reserve Bank for non-bank deposit takers. This aids capital management, reducing overheads for more market players and further stimulating competition in the financial services sector. As the DCS prepares to launch on July 1, its rollout reflects careful planning. Delayed from earlier targets to ensure readiness, the scheme promises to bolster confidence without destabilising the market. King, with a touch of humour, remains optimistic: 'The Government is doing the right things with DCS and ESAS. We all like to complain about various goings-on, but there's good news here for the sector as a whole.' Investors should look for the official RBNZ DCS logo to identify financial institutions that are included in the scheme or contact the RBNZ if in doubt. Effective 1 July 2025, General Finance's secured term deposits are covered by the DCS, up to $100,000 per depositor.
Scoop
06-05-2025
- Business
- Scoop
Risks To The Financial System Have Increased
Press Release – The Reserve Bank of New Zealand Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk, Mr Hawkesby says. While the global economic environment has become more volatile, our financial institutions are in a strong … 7 May 2025 Risks to the financial system have increased over the past six months, Reserve Bank Governor Christian Hawkesby says in releasing the May 2025 Financial Stability Report. 'Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,' Mr Hawkesby says. 'While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.' Geopolitical risks have escalated, particularly following the US imposition of sweeping tariffs on goods imports from many countries, including New Zealand. These developments have heightened financial market volatility and pose a material risk to global economic activity. Domestically, economic activity remains subdued. Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand. However, lower borrowing costs and high agricultural export prices are supporting debt serviceability. Banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower. General insurers are experiencing more stable conditions. Our recent insurance stress test highlighted improved resilience in the sector, but also the challenges of extreme seismic events for New Zealand. Progress is continuing on the implementation of the Deposit Takers Act 2023. Several strands of this work will help to promote competition and efficiency in the deposit-taking sector. 'Work on the review of key bank capital settings is well underway, with the release of the Terms of Reference today. This outlines the purpose, approach, and scope of the review, to ensure the right settings are in place to support financial stability and promote the wellbeing and prosperity of New Zealand,' Mr Hawkesby says. 'We will engage leading international experts to inform and challenge our review.' The Depositor Compensation Scheme will come into effect on 1 July 2025. This will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system.
NZ Herald
06-05-2025
- Business
- NZ Herald
Reserve Bank warns US tariffs pose risk to NZ financial stability
'Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand,' the report said. 'However, lower borrowing costs and high agricultural export prices are supporting debt serviceability,' it said. The Reserve Bank said the banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. 'They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower.' Global equity prices have declined and corporate funding spreads, both domestically and offshore, have widened from low levels, the Reserve Bank noted. Long-term yields on US government bonds were volatile. 'Trade restrictions are a key risk to New Zealand's financial stability,' the Reserve Bank said. 'The impact of tariffs on our trading partners is expected to lower demand for our exports. 'Some agricultural industries that have limited scope to divert products from the US to alternative markets are more vulnerable to US tariffs. 'Banks are well placed to handle temporary dislocations in overseas funding markets. 'The direct impact of US tariffs on New Zealand exports could be severe for industries heavily exposed to US demand, although they are only a small part of the overall economy.' New Zealand's largest exports to the US are meat, dairy products, and wine. 'US tariffs are also expected to have indirect impacts on New Zealand, by targeting our key trading partners and reducing their growth. 'These indirect impacts of tariffs on our trading partners may carry greater risk to financial stability than direct impacts,' it said. High export prices have supported cashflow in the dairy sector. Rising global commodity prices have improved conditions in many parts of the agriculture sector. Dairy sector Dairy sector conditions have improved over the past six months as international prices rose to elevated levels. Fonterra's farmer suppliers may also benefit from a one-off payment from the cooperative's sale of its global consumer business, although the timing and size of the payment are uncertain, the bank said. Lower farm-cost inflation has also eased cashflow pressures. Improved cashflow will allow dairy farmers to continue to reduce debt and increase their resilience to future downturns. Household and business demand for credit remains weak despite lower interest rates. Many borrowers rolling off fixed rates are moving on to floating rates or shorter-term fixed rates, it noted. These borrowers are waiting for further Official Cash Rate cuts before re-fixing for longer terms. The effective (weighted average) mortgage rate across all borrowers remained close to its peak. 'We expect around 60% of mortgage lending to reprice to lower rates within the next six months, and around 80% within a year,' the bank said. Progress is continuing on the implementation of the Deposit Takers Act 2023. The Depositor Compensation Scheme will come into effect on July 1 this year. The scheme will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system, the bank said.
Scoop
06-05-2025
- Business
- Scoop
Risks To The Financial System Have Increased
Risks to the financial system have increased over the past six months, Reserve Bank Governor Christian Hawkesby says in releasing the May 2025 Financial Stability Report. 'Financial stability is critical for ensuring that New Zealanders can safely save, borrow, and manage financial risk,' Mr Hawkesby says. 'While the global economic environment has become more volatile, our financial institutions are in a strong position to support the economy.' Geopolitical risks have escalated, particularly following the US imposition of sweeping tariffs on goods imports from many countries, including New Zealand. These developments have heightened financial market volatility and pose a material risk to global economic activity. Domestically, economic activity remains subdued. Previously high interest rates, rising unemployment, and a weak housing market continue to weigh on demand. However, lower borrowing costs and high agricultural export prices are supporting debt serviceability. Banks have strong capital and liquidity buffers in place to maintain credit flows even if conditions deteriorate further. They also remain profitable, with non-performing loans expected to decline as mortgage rates reprice lower. General insurers are experiencing more stable conditions. Our recent insurance stress test highlighted improved resilience in the sector, but also the challenges of extreme seismic events for New Zealand. Progress is continuing on the implementation of the Deposit Takers Act 2023. Several strands of this work will help to promote competition and efficiency in the deposit-taking sector. "Work on the review of key bank capital settings is well underway, with the release of the Terms of Reference today. This outlines the purpose, approach, and scope of the review, to ensure the right settings are in place to support financial stability and promote the wellbeing and prosperity of New Zealand," Mr Hawkesby says. 'We will engage leading international experts to inform and challenge our review.' The Depositor Compensation Scheme will come into effect on 1 July 2025. This will protect depositors' funds in the event of a deposit taker failure and is a significant milestone for enhancing trust and competition in the financial system.
Scoop
01-05-2025
- Business
- Scoop
Reserve Bank Publishes Response To Deposit Taker Core Standards Consultation
The Reserve Bank of New Zealand - Te Pūtea Matua has today published its response to submissions on three of the four core standards that set the prudential requirements deposit takers will need to meet in order to be licensed under the Deposit Takers Act 2023 (DTA). Jess Rowe, Director Prudential Policy, says the response covers liquidity, disclosure, and Depositor Compensation Scheme (DCS) related requirements. 'The DTA standards give us a significant opportunity to create a coherent, modern and proportionate prudential framework,' Ms Rowe says. 'The three core standards covered in this release ensure deposit takers can manage their liquidity, provide timely prudential disclosures to the market, and meet data and disclosure requirements for the DCS.' Public consultation on the proposed core standards generated 26 submissions from banks, non-bank deposit takers and industry groups. 'In response to comprehensive submissions and engagement from industry, we're making changes to further support a proportionate approach, reduce compliance costs, and improve regulatory efficiency,' says Ms Rowe. 'This shows our focus remains on ensuring prudent management of risk, in a manner that also supports an efficient, competitive and inclusive financial system.' A fourth standard, the capital standard, was also included in the core standard consultation. This standard generated a significant number of submissions. To ensure we address these submissions, and the matters raised at the Finance and Expenditure Committee inquiry into banking competition, we have announced a more comprehensive review of key aspects of our deposit takers capital settings. The response to submissions on this standard will, therefore, not be published at this time. Deposit Takers Act background The Deposit Takers Act 2023 (DTA) modernises our regulatory framework to help ensure the safety and soundness of deposit takers and support a stable financial system that New Zealanders can trust. Once the DTA is fully in force (expected to be in 2028), the Reserve Bank will begin regulating and supervising credit unions, building societies and finance companies (known as non-bank deposit takers or NBDTs), together with banks, under a single, consistent, and proportionate framework. The Act also introduces a new Depositor Compensation Scheme (DCS), effective from 1 July 2025. The Reserve Bank ran a consultation on the four core standards from May to July 2024 and on the nine non-core standards from August to November 2024. More information Deposit Takers Act Implementation timeline Proportionality Framework
