14 Mar 2011

Replacement for deposit guarantee to be decided

11:07 am on 14 March 2011

Finance Minister Bill English wants investors to shoulder more of the burden if a financial institution fails, once the Retail Deposit Guarantee Scheme expires at the end of the year.

The scheme was introduced during the global financial crisis in 2008 and has cost the taxpaper billions of dollars following the collapse of firms like South Canterbury Finance - though much of the money should be recovered over time.

Mr English says one replacement option being considered is Open Bank Resolution, which would involve shareholders and lenders working to keep the failed business open for customers to access their accounts.

He says the Government would prefer that those who do business with financial institutions bear the cost of any solution, because of the impact on taxpayers if the system relies on the Government to take all the risks.

The Reserve Bank will release details on the idea early this week.