Govt deposit liability 'huge but risk low'

Last updated 09:04 13/10/2008

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The Government’s contingent liability in guaranteeing savings deposits was huge “but it just won't be called upon,” Reserve Bank Governor Allan Bollard says.

The likely liability, he said, was “very very small”.

Speaking on Radio New Zealand’s Morning Report, he said the bank deposit government guarantees will not lead to a flight of cash between institutions with the guarantee and those without.

“We think we have cast the net wide enough,” he said.

“We are including banks, saving institutions, building societies, credit unions, finance companies that take deposits… we really don’t think there will be a problem about moving funds moving between institutions.”

He admitted defining some deposits would have “complicated details around some of the boundary issues", but if a deposit is defined as a deposit then it was in and they are covered by the guarantee.

Dr Bollard said New Zealand had gone for the two year scheme rather than the three year one Australia has because they see it only as a way to get through financial turbulence, and the New Zealand scheme was extendable.

Events late last week forced the Government’s hand, particularly as markets in Australia by Friday were very rocky.

“It was probably the time to move because all around the world government were moving.”

Dr Bollard said New Zealand banks were sound.

“The financial system is stable in NZ and it has been for a long time.”

The Reserve Bank has set up a free-phone number for people to call with concerns about whether deposits were covered. It is 0800 7269-7269.

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- Fairfax Media

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