The Government's proposed deposit-protection scheme is nowhere high enough and needs to be doubled, according to a banking expert.

Today, Cabinet gave the green light for a deposit protection scheme, that would cover almost all Kiwis to up to $50,000, to be developed.

Speaking at her weekly post-Cabinet press conference, Prime Minister Jacinda Ardern said New Zealand stood apart from the rest of the world in having no formal, or permanent, deposit-protection regime.

"This means that Kiwis with bank deposits have no protection from the failure of a financial institution, which would be from risks beyond their control."


The scheme would mean that Kiwis with between $30,000–$50,000 deposited in the bank would have that amount protected in the event of a bank collapse.

Finance Minister Grant Robertson said the scheme would cover 90 per cent of individual bank deposits in New Zealand, which is similar to international schemes.

But Massey University head of finance and economics David Tripe said the idea that $30,000-$50,000 is generous by international stands is wrong.

"In the grand scheme of things, it's not a very serious commitment."

He said it should be higher – "otherwise it's a joke" and suggested it should be closer to $100,000.

Massey University head of finance and economics David Tripe said the idea that $30,000-$50,000 is generous by international stands is wrong. Photo / Getty Images
Massey University head of finance and economics David Tripe said the idea that $30,000-$50,000 is generous by international stands is wrong. Photo / Getty Images

Many other countries around the world, including the UK and Australia, have similar schemes but at much higher levels.

For example, up to close to NZ$165,000 is protected in the UK in a similar scheme. That figure is closer to $260,000 in Australia and $378,000 in the US.

But Robertson said it was the 90 per cent of people who would be covered by the scheme which is what is in line with other similar countries.


He said the $30,000–$50,000 was "clearly significantly less in terms of actual deposit money".

"It gets the balance right between providing protection for everyday bank depositors but also acknowledging that also some risk inherent in this."

The scheme would cover $30,000-$50,000 per depositor, per institution.

Although the scheme would cover 90 per cent of depositors, Robertson said it would only provide protection for 40 per cent of all money deposited in banks.

Other business accounts, for example, would not be covered by the scheme.

Roughly $170 billion of Kiwis' savings are in deposits with banks across New Zealand.


As for who would pay for the scheme, Robertson said most of these sorts of schemes rely on a bank levy supported by Government intervention if required.

"That bank levy is usually built up over time, hence why you need some Government backstop while it's being created."

The scheme now goes out for consultation and may change. The legislation would be drafted in the first half of next year – it is not yet known when it would go before the House as a bill.

Meanwhile, it is unclear how KiwiSaver would fit into the scheme.

Robertson said KiwiSaver was already been looked at under three different reviews – "from default providers to an overall look at the scheme".

But it would be up to the Treasury and the Reserve Bank to see KiwiSaver also had a place in the deposit protection scheme announced today.


As well as an in-principle decision to develop the scheme the Government is looking into giving the Reserve Bank more powers to police banks.

Banking regulation has always been a part of the central bank's mandate but organisations, such as the IMF, have said the Reserve Bank's powers need to be bolstered.

Last week, Robertson said ANZ had more questions to answer, after the departure of its chief executive, David Hisco, after he misused the bank's funds.

The bank is also in hot water for not correctly calculating its risks, which earned it a censure from the Reserve Bank.

Robertson would not comment when asked if tougher penalties would have changes how the Hisco saga played out.

"But what I would say is if you don't have rules like that, it's hard to enforce them."

This comes as Deputy Prime Minister Winston Peters called for the resignation of ANZ's chairman, Sir John Key, over the saga.


Speaking to Q&A, Peters said: "I think it's wrong that Mr Key can be at the head of ANZ New Zealand and sit on the Australian equivalent as well."