Election 2014

23 Oct 2008

Decision on extending bank scheme 'before election'

4:21 pm on 23 October 2008

Finance Minister Michael Cullen says he will not be rushed to offer a guarantee to wholesale bank deposits, despite a call by National to move quickly, but says a decision will be made before the election.

Dr Cullen has accused National of dancing to the tune of Australian banks over the issue of whether to extend the scheme from its current position of guaranteeing retail deposits only.

National Party finance spokesperson Bill English said on Thursday the Government should move sooner rather than later to guarantee wholesale bank deposits.

That would involve an assurance to overseas lenders to New Zealand banks that the Government will repay them if a bank goes under.

Governments around the world have been offering such guarantees in an effort to get banks lending to one another again, as the international financial crisis continues.

Dr Cullen says the Australian-owned banks have been applying pressure over the issue and that appears to have influenced Mr English, and National leader John Key.

"We are not going to be stampeded by the Australian banks into hasty decisions. That doesn't mean to say there's an indefinite wait at all, but I'm actually getting quite concerned at the sign that Mr Key and Mr English simply dance to the tune played by the Australian banks."

He said a wholesale guarantee scheme would be "difficult to avoid having", though a number of factors have to be considered, including seeing the detail of the Australian scheme, before the New Zealand Government acts.

Dr Cullen said a decision will be made before the election.

The Government announced on 12 October it was guaranteeing retail deposits in banks and other financial institutions, amid the international financial crisis.

On 22 October Treasury and the Reserve Bank said the guarantee for deposits would be capped at $1 million per depositor per institution.

National leader John Key brushed aside Dr Cullen's criticism saying he thinks the Finance Minister would have welcomed National's stated willingness to act on a bipartisan basis.

He has doubts as to whether a decision can made before the election, saying that timing may be a bit optimistic given there will be negotiation with Australian authorities and Australian-owned banks.

The United Future leader Peter Dunne is also unsure about the rush to guarantee wholesale bank deposits and says it should wait until a new government is formed.

He said further steps should not be taken until after an international summit on the economic crisis in Washington on 15 November.

Decision should not be delayed - English

Bill English said officials have been talking to Australian authorities about how to share the risk of such a guarantee between New Zealand taxpayers and Australian owners of the banks.

He told Morning Report on Thursday that further progress in such talks would be good, but should not delay a decision.

"We shouldn't let our concerns with the Australian owners get in the way of ensuring financial stability for our banks in New Zealand because its our economy that would suffer if this policy gets it wrong.

Mr English said there is some urgency to make a decision.

"There has been various analysis that says that in the absence of a wholesale guarantee banks will start behaving as if there isn't going to be one and start restricting lending in ways that could have quite an impact on the economy."

Mr English is satisfied that Treasury and Reserve Bank officials are working to prepare a wholesale deposit guarantee scheme, should a decision be made to put one in place.