National's finance spokesman Bill English has voiced reservations about the Government's deposit guarantee scheme.
Under the scheme, announced on Sunday, the Crown guarantees bank deposits up to a total of $150 billion.
National leader John Key endorsed the scheme yesterday, following a briefing from Reserve Bank Governor Alan Bollard, but said there were still many aspects that remained unclear and some changes might be necessary.
These included extending the coverage of the guarantee to interbank borrowing as was being offered in Australia.
Mr English today elaborated on that exclusion, which some commentators have said could lead to foreign banks being unwilling to lend their money into the New Zealand system.
"The bottom line here is whether or not leaving out the international loans to New Zealand banks from the guarantee will constrain our banks in providing credit," Mr English said on Radio New Zealand.
He said National would keep talking to the big banks to see if the exclusion was affecting them because if credit tightened too much that would slow down any economic recovery.
Finance company failures
Dr Bollard yesterday said the $150 billion guarantee was probably the Government's single largest contingent liability but taxpayers were unlikely to have to pay for a big bank bailout.
"The likely real liability would be far, far less," he said.
He said taxpayers could get the bill for finance company failures.
"One can see only in the extreme case the odd finance company or something down the bottom of the non-bank financial institution structure being into any sort of call on this."
Deposit-taking finance companies are covered in the Government's scheme.
Dr Bollard conceded the hastily drafted scheme was far from perfect.
Concerns about it included the possibility that a Government guarantee on deposits might encourage banks and other institutions to indulge in riskier activities.
Mr English said managing the scheme in a way that did not encourage smaller finance companies to take additional risks or use it to try and get themselves out of trouble would be difficult.
"We're interested in talking to the Reserve Bank about what policies are going to be applied and it's not that transparent now, but there is time to develop some transparency around how the Reserve Bank is going to determine the lending practices of the institutions.
"Because now that the taxpayer is guaranteeing them ... someone needs to make sure that the risks are appropriate."
Dr Bollard also acknowledged "boundary issues" over deciding what qualified as a deposit for the purposes of the scheme.
At least some of the big banks are unhappy that the guarantee does not extend to wholesale deposits, unlike the Australian scheme also announced on Sunday.
They are also unhappy that they will pay tens of millions in fees while smaller, riskier institutions will pay nothing.
Dr Bollard said some distortions were inevitable in such a "big-umbrella scheme".
"The only thing we would have concerns about is whether finance companies that are lending quite riskily might try to get cross-subsidised off the Government guarantee."
Massey University's head of banking studies, David Tripe, agreed this was one of the "unfortunate consequences" the scheme might throw up.
"If you were running a small finance company, you would now have a wonderful opportunity to rake money in and lend it out on all sorts of risky projects."
Dr Bollard said the Reserve Bank might have to "spend more time focused on finance companies' behaviour" and checking that they were complying with their trust deeds.
Some finance companies in breach of their trust deeds, including Hanover Finance and Dorchester Pacific Finance, have indicated they may seek to become compliant with those deeds once again so their deposits can be covered by the scheme.
Its introduction will be a bitter pill for investors who have already lost or stand to lose money in the string of finance company failures over the past 2 1/2 years.
Suzanne Edmonds, of the investor activist group Exposing Unacceptable Financial Advice, said she had received hundreds of phone calls from group members and other finance-company investors asking "how can the Government do this for the banks when it didn't do it for the finance companies?"
Banks around the world began moves last night to ease the credit crisis.
The Bank of England, the European Central Bank and the Swiss National Bank jointly announced they would work together to make money available to ease the credit freeze.
The Bank of Japan said it was considering a similar move.
To assist the European banks, the US Federal Reserve said it was taking action to assure enough American dollars were available to meet demand.
The Government will guarantee deposits in institutions including registered banks, building societies, credit unions, deposit-taking finance companies and in cash PIEs (portfolio investment entities) sponsored by qualifying institutions.
The Government will cover an institution with up to $5 billion in deposits for free. Larger institutions will be charged a fee of 0.1 per cent of the value of deposits above that.
The scheme will run for two years.
It will add about $150 billion to the Government's books as a contingent liability.