4 Nov 2012

Planned new system 'would limit bank collapse disruption'

5:47 am on 4 November 2012

The Reserve Bank says its Open Bank Resolution system could save the country $1 billion in the event of a banking collapse.

Open Bank Resolution is a system designed to minimise the disruption to the wider economy of the collapse of a big bank.

The bank would open for business the next working day at which time depositors would have access to their accounts.

A portion of those deposits would be frozen in order to cover potential losses and a statuatory manager would be appointed to wind down the bank.

At present, if a buyer cannot be found, it could be years before a liquidator sells the bank's assets and depositors see their money.

The alternative is a costly bailout of depositors by the Government.

The Reserve Bank, which has been working on Open Bank Resolution since the 1997 Asian financial crisis, says it could save New Zealand $1 billion in the event of a banking collapse by limiting disruption to the economy and saving on bailout costs.

It would come with some costs, including $20 million for banks to upgrade their computer systems, and potentially higher funding costs for the banks.