20 June 2000
No government guarantee of banks in New Zealand
The Reserve Bank today clarified the relationship between registered banks in New Zealand and the government.
This followed Deputy Prime Minister Jim Anderton today saying on breakfast television that: "It's inconceivable that banks can be allowed to fail with all the repercussions that would go through the whole community."
Reserve Bank Deputy Governor Rod Carr: "It is impossible to predict how a future government would respond to a bank failure in New Zealand, and Mr Anderton is certainly entitled to his views. However, it is important, for the record, that nobody misinterprets Mr Anderton's statement.
"In New Zealand the current policy is that there is no government or Reserve Bank guarantee of banks or bank deposits. There is also no system of deposit insurance. Depositors and other creditors of banks should operate on the presumption that, if a bank were to fail, the government would not insulate them from losses.
"The system of bank registration and supervision which the Reserve Bank operates under current legislation requires the Bank to promote the soundness and efficiency of the financial system. It does not rule out the possibility that banks might fail. Indeed, a large part of the legislation gives the Reserve Bank a range of powers to deal with a bank in trouble, and some failed banks might be wound up like any other failed business.
"Clearly, the New Zealand banking sector is financially stable at present, and the likelihood of a bank failure is extremely low. But nobody should believe that a bank failure is inconceivable, or would be prevented at any cost.
"It is up to bank customers to make their own judgements about the soundness of the banks that they deal with. Indeed the supervision system that we operate, based as it is on a high level of required disclosure of financial information, ensures that bank customers have sufficient information to form their own judgements about the financial stability of the banks with which they deal," Dr Carr concluded.
For further information contact
Paul Jackman
Corporate Affairs Manager
Ph 04 471 3671, 021 497 418, home 04 938 8177, Jackmanp@rbnz.govt.nz
