The Government has decided to introduce insurance of retail bank deposits up to $50,000 per institution and says that will likely fully cover more than 90 per cent of depositors.
Finance Minister Grant Robertson said the deposit insurance scheme is one of a number of changes stemming from phase two of its review of the Reserve Bank Act.
Other changes give the RBNZ greater powers to monitor banks and hold directors and executives more accountable for their actions, a new governance board to oversee financial stability matters and measures to improve transparency at the Reserve Bank, including more oversight for the Auditor-General and the Ombudsman.
The Government will also introduce a financial policy remit outlining matters it wants the new governance board to have regard to when pursuing the Reserve Bank's financial stability objectives.
"New Zealand has a strong and stable banking system but it is regulated by laws that are 30 years old," Robertson said in a statement announcing the changes.
"We're making sure they're up to date."
The new board is in line with changes made in phase one of the Reserve Bank Act review that instituted a monetary policy committee to replace having sole decision-making power vested in the governor.
The proposed changes incorporate lessons from Australia's Hayne royal commission into financial services, which include an in-principle decision to follow recent Australian reforms to strengthen director and executive accountability as recommended by the Hayne report.
"It is important that Kiwis have confidence in the people running our banks and know the consequences they'll face. We've seen examples of how confidence was shaken overseas and we're acting to make sure New Zealand has a world-leading accountability regime," Robertson said.
The decision on the limit for deposit insurance followed consultation on a range of $30,000 to $50,000 and that insurance will be covered by a new Deposit Takers Act that will govern RBNZ's regulatory powers.
The final decision to insure up to $50,000 per customer per bank compares with Australia's A$250,000 deposit insurance scheme.
A separate Institutional Act will outline how the Reserve Bank is governed and how it operates.
"Splitting the acts allows all deposit-takers to be regulated under a single flexible framework, providing a more consistent approach to the regulation of the sector," Robertson's statement said.
He intends to introduce the Institutional Act in mid-2020 and that Cabinet plans to make final policy decisions on the Deposit Takers Act and the deposit insurance scheme in mid-2020 following further consultation.