12 Apr 2013

Govt doesn't favour bank deposit insurance

7:38 am on 12 April 2013

Finance Minister Bill English says he is not considering introducing deposit insurance to help deal with a bank collapse.

On Thursday, the Reserve Bank reiterated its Open Bank Resolution (OBR) scheme is the best way to ensure the financial system runs as smoothly as possible in the event of a collapse and would allow people to use their accounts as soon as possible after a failure.

But the central bank says that doesn't rule out deposit insurance, which can operate with or without the OBR scheme.

The Government rejected deposit insurance two years ago and Mr English says the OBR sends the right signal to banks and its owners to run the business prudently.

He says this Government's position is that it does not favour deposit insurance, it favours stronger banks.

Mr English says the Government believes it is important for banks to take responsibility for being strong enough to weather quite extreme circumstances and therefore protect their depositors.

He says there's a growing understanding in the banking community that they can't rely on the taxpayer to bail them out if they made irresponsible decisions.

But Mr English says New Zealand banks are strong by world standards and they are making responsible decisions.