Government guarantees all bank deposits

RADIO NEW ZEALAND: The Government has moved to guarantee all bank deposits but it says no banks here are at any risk.

Finance Minister Michael Cullen says with other countries offering bank deposit schemes New Zealand has to follow suit.

Prime Minister Helen Clark made the announcement when she launched the Labour Party's election campaign in Auckland on Sunday.

Under the scheme which does not include related party liabilities, all bank deposits will be guaranteed if banks choose to take it up.

Dr Cullen says banks with deposits of more than $5 billion will be charged to have the guarantee.

A fee of 10 basis points per annum will be charged on total deposits above $5 billion.

This means that a bank with $20 billion in retail deposits would pay $15 million in fees per annum.

If all banks do take it up, it will leave the Government with a contingent liability of about $150 billion.

The new scheme would take the form of a bilateral contractural agreement between the Crown and the individual banking institutions which take up the guarantee.

Dr Cullen says banks here are financially strong.

He says if the Government did not offer a deposit guarantee scheme there was a risk savings would be diverted to countries which did.

Dr Cullen says the deposit guarantee will be introduced for a two year term in the first instance, which will give time to see how well international financial markets stabilise in the months ahead.

The National Party says it welcomes the scheme and it expects the Government to consult with it to work out the final details.