Banks have rushed to sign up to a $150 billion deposit guarantee scheme, meaning the savings of most Kiwis are now government-backed.
The big trading banks, ANZ-National, BNZ, ASB and Westpac, joined TSB, SBS Bank and Government-owned Kiwibank in confirming yesterday their commitment to the scheme, which is aimed at restoring confidence in the face of a world financial storm.
But the blanket guarantee is already drawing criticism. There are concerns it will, in effect, encourage a shift in savings away from banks to finance companies, whose offers of higher returns on riskier investments might be harder to resist if they came with a government safety net.
Meanwhile, the Government's decision to move without consulting National just 3½ weeks from a possible change of government has drawn fire. National leader John Key said he should have been informed of a decision of such magnitude.
He accused the Government of playing politics by blocking Treasury and Reserve Bank officials from briefing him ahead of the announcement on Sunday.
Mr Key returned to Wellington from Gisborne yesterday for a briefing with Reserve Bank governor Alan Bollard and said he had asked to be briefed on further developments. But he was told that was up to Finance Minister Michael Cullen.
He said National still had questions about some anomalies in the scheme, but gave an assurance of the party's support.
He was aware banks had been fielding a growing number of calls from people worried about their savings. "We are in a liquidity crisis ... of virtually unprecedented terms."
A spokesman for Dr Bollard said the scheme was Government policy so it was not the bank's place to brief the opposition in advance. Prime Minister Helen Clark said she did not have a duty to brief Mr Key.
Labour seized the initiative with its announcement of the scheme and Miss Clark kept up the pace yesterday with another student loans sweetener: the phasing out of the parental income test on student allowances over the next four years.
Labour's interest-free student loans scheme was a big vote-winner in 2005. But the multimillion-dollar pricetag to phase out the parental test drew accusations from National that Labour could afford the scheme only by borrowing more or using a December mini-budget to scrap tax cuts legislated for 2010 and 2011.
Miss Clark rejected the claim. Reversing the tax cuts was "not on my agenda at all".
Dr Bollard said yesterday that the deposit guarantee scheme was similar to one announced at the same time in Australia.
But a major difference is the Australian Government's plan to guarantee the other liabilities of its banks. The move is aimed at helping them to raise money on frozen overseas markets.
Dr Bollard said the extra guarantees would help New Zealand banks, because they were subsidiaries of Australian companies.
Locally owned banks such as Kiwibank sourced funds from local depositors.
They and the Australian bank subsidiaries would not be at a disadvantage compared with banks across the Tasman - and they had enough cash to see them through to the end of the year, after which the Reserve Bank could step in and lend to them at higher interest rates.
Dr Bollard left open the possibility of extending the scheme to other liabilities. He conceded, however, that more work was needed on ways to ensure that riskier finance companies were properly monitored.
Mr Key said he had won assurances that finance companies would be allowed in only at the discretion of the Government.
Dr Bollard said the scheme had to cover non-banks, credit unions and other institutions or there could have been a run on their funds as depositors switched to banks that had guarantees.
- The Dominion Post