KEY POINTS:
The Government will guarantee all bank deposits in response to the international financial crisis.
The move, which mirrors one made by Australia's Labour Government, is intended to stop panic withdrawals.
As well as mainstream trading banks, it will cover savings with credit
unions, building societies, finance companies that take deposits, and to cash portfolio investment entities that are sponsored by covered institutions.
The guarantee will be free for banks with deposits up to $5 billion but a fee will be charged on deposits over that amount.
It will apply to finance companies which take deposits, but it will not be retrospective so it will be of no comfort to the thousands of investors who have lost money in a series of collapses.
Prime Minister Helen Clark made the announcement at the launch of the Labour Party election campaign in Auckland yesterday.
She also outlined a detailed spending plan to stimulate the economy if a worsening economic downturn warrants it.
It includes bringing forward planned infrastructure spending and building projects such as school property upgrades, and support for back country reafforestation.
Projects such as extending the rail line from Whangarei to Marsden Point, and specific schools have been identified.
Helen Clark said a mini-Budget would be produced in December if Labour wins the November 8 election.
She said it was important to show leadership "so that a financial crisis overseas doesn't lead to depression in New Zealand with widespread unemployment."
All Labour's planned moves would result in extra jobs.
Helen Clark also announced a allowance that would finance retraining for people who had been in the workforce for more than five years and had been made redundant.
In her conference speech, Helen Clark blamed the "greed" of the money markets for the crisis.
"A curtain is being drawn on the era of the free-wheeling unregulated money traders and financiers whose greed has shaken the international financial system to its core," she said.
"Co-ordinated international action will be needed to ensure that the greed merchants don't ever again get the chance to destroy the lives of ordinary people in real jobs trying to put food on the table for their families."
She has been in talks with Australian Prime Minister Kevin Rudd over the deposit guarantee scheme.
Australia's Government yesterday said it would guarantee all bank deposits for three years, and would charge no fee.
Finance Minister Michael Cullen agreed that victims of finance company collapses might feel a bit aggrieved but said: "Life has moved on since then in terms of people need assurance on their deposits across a broad range of institutions."
He said there was no evidence of risk in any New Zealand institution, and none was expected.
But New Zealand would have been the only country in the world not giving such a guarantee.
"There are other announcement going on around the world, which means that if we did not do something there was a risk that people might feel slightly jittery."
Reserve Bank Governor, Alan Bollard, has briefed National party leader John Key and Finance spokesman Bill English, but they have not been told of the deposit guarantee scheme.
Mr English will be briefed today.
Dr Cullen said he was using his powers under the Public Finance Act to approve the guarantee scheme. Legislation was not required.
Mr Key said last week he would support such a scheme, and last night welcomed the move.
"While New Zealand's banking system continues to be sound, with international moves including that by Australia to implement a deposit guarantee system, this is an inevitable and sensible step."
"We would expect the Government to set up a fully bipartisan process for thrashing out the details."
Deposit guarantee scheme - How it works
What is a deposit guarantee scheme?The Government will guarantee people's full deposits in various institutions meaning that if a qualifying institution goes into liquidation, depositors will be able to get their money out. Banks and other qualifying institutions will contract into the scheme, which will run for two years.
What institutions does it cover?All retail deposits in participating New Zealand-registered banks and retail deposits by locals in non-bank deposit-taking entities, including building societies, credit unions, deposit-taking finance companies and cash PIEs (portfolio investment entities) that are sponsored by qualifying institutions.
Will it cost anything?The Government will cover an institution for no fee up to $5 billion in deposits. Larger institutions will be charged a fee of 0.1 per cent above that. So a bank with $20 billion in retail deposits will pay $15 million a year in fees, and that could be passed on to customers.
Will it cost the Government anything?It will add about $150 billion to the Government's books as a contingent liability but the Government is adamant that New Zealand's banks are sound, so there is no danger that it will have to pay out.
How big are the bank deposits?The smallest trading bank is Kiwibank with a little over $5 billion. The big four - Westpac, ANZ-National, BNZ, and ASB - have deposits in the order of $30 billion to $40 billion each.
