New Zealand "Open Bank Resolution". Cyprus-like proposal?
Political round-up: Shearer fails 'holier than thou' test
By Bryce Edwards - 5:21 PM Wednesday Mar 20, 2013 [ 14th paragraph down ]
There are no angry mobs in the Wellington streets yet, but the Greens comparison of the Reserve Bank's plans to the current crisis in Cyprus has the backing of some banking experts - see David Mayes' Government must insure our savings .. http://bit.ly/ZYG4LS . It appears that the Government is planning to give banks the power to take money from people's accounts if they fall over - see James Weir's Kiwis could face Cyprus-style trim .. http://bit.ly/146swUl .. and Bryan Gould's Cyprus outrage not too far from home .. http://bit.ly/Yn80ei . It is a good example of Labour being 'slow out of the traps, and short on the principles involved' compared to the Greens says Gordon Campbell in On the official emergency plan to steal from your bank account .. http://bit.ly/ZIiljj .
Rob Hosking | Wednesday March 20, 2013 | 33 comments
"Shouldn't banks have to declare who actually has first dibs on your deposit if/when they stuff up?" Featured comment
New Zealand depositors would not, in a financial meltdown, face the sort of raid on their accounts considered in Cyprus, the Reserve Bank says.
In any meltdown, depositors could lose their money, but that has always been the case, deputy governor Grant Spencer says.
“If their bank fails, depositors have always needed to understand that deposits are not guaranteed. What OBR [Open Bank Resolution] does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk."
The suggestion, by Labour finance spokesman David Parker, that banks should be required to buy deposit insurance to cover their depositors confuses the issue, Mr Spencer says.
Deposit insurance is not a substitute for open bank resolution. It is aimed at protecting individual depositors: the OBR policy is aimed at stopping the failure of one bank contaminating other banks and the entire financial system.
"It is a separate issue altogether. The New Zealand government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure," Mr Spencer says.
“Deposit insurance is widely used in Europe, including Cyprus, but hasn’t prevented banking failures, as we saw during the global financial crisis.”
The alternative to open bank resolution is not deposit insurance but government bailout – or allowing the bank to fail, he says.
===== .. h/t to tinner .. thanks, hadn't heard of the NZ proposal at all .. one more ..
We're no Cyprus, says Reserve Bank
By Jamie Gray - 2:00 PM Wednesday Mar 20, 2013
Protesters outside of parliament in Nicosia, Cyprus. Grant Spencer said the OBR policy bears little resemblance to proposals to resolve the banking crisis in Cyprus. Photo / AP
New Zealand's Open Bank Resolution (OBR) policy is "markedly different" from proposals to resolve the banking crisis in Cyprus, Reserve Bank deputy governor Grant Spencer said today.
He pointed out that depositors' money has never been guaranteed, apart from temporary periods, such as under the Government's deposit guarantee scheme from late 2008 to December 2011.
"If their bank fails, depositors have always needed to understand that deposits are not guaranteed," Spencer said. "What OBR does is facilitate a rapid and orderly resolution of a bank failure - it does not change the fact that depositors and other creditor funds are at risk," he said.
New Zealand banks are readying their IT systems for OBR - a Reserve Bank policy that in extreme cases like insolvency would see a bank's losses shouldered in part by its shareholders and creditors - including everyday depositors.
The Reserve Bank has the power to freeze bank deposits but up until now has lacked the technical infrastructure to implement it - hence their requirement for banks with retail deposits of more than $1 billion to change their systems and meet their requirements by July 1.
Bank failures in New Zealand are rare and the main banks operating here are among the most highly rated in the world.
Spencer said the OBR policy bears little resemblance to proposals to resolve the banking crisis in Cyprus.
He said the alternative to OBR is for the government to bail out banks with taxpayers' money - which comes with potentially enormous fiscal costs - or to close the failing bank, which comes with large economic costs.
"The Cyprus situation is very complex, it is a systemic collapse and not a case of just one institution failing," Spencer said, adding it needed to be seen in the context of the broader European sovereign debt and banking crisis.
The Cyprus banking system is dominated by a large foreign deposit base, from Russia in particular.
Spencer said deposit insurance is not a substitute for OBR or any other resolution tool.
The New Zealand Government had looked at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure.
"Deposit insurance is widely used in Europe, including Cyprus, but hasn't prevented banking failures, as we saw during the global financial crisis," Spencer said.
Overnight, Cyprus rejected a proposed levy on bank deposits as a condition for a European bailout, throwing international efforts to rescue the latest casualty of the euro zone debt crisis into disarray.
The vote was a big setback for the 17-nation currency bloc, angering European partners and raising fears the crisis could spread. Lawmakers in Greece, Portugal, Ireland, Spain and Italy have all accepted austerity measures over the last three years to secure European aid, Reuters reported.
On Tuesday, the New Zealand Green Party seized upon the opportunity to draw parallels between OBR and the initial Cyprus proposal.
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