$100k deposit compensation scheme becomes law

Consumers will have up to $100,000 of their deposits protected in the unlikely event of a bank failure, after parliament passed legislation designed to strengthen the financial system.

Under the Deposit Takers Bill, which has been approved by parliament, the Reserve Bank of New Zealand (RBNZ) will ensure consumers are “promptly compensated” for up to $100,000 if they’ve deposited their money with an authorised deposit-taking institution that fails.

This government guarantee is expected to begin in late 2024, as the RBNZ first has a lot of preparatory work to do.

Currently, only two of the 38 countries in the OECD (an organisation that primarily consists of developed countries) lack a deposit insurance scheme – New Zealand and Israel.

“The passing of this bill will allow for the introduction of depositor protection and close a long-standing gap in New Zealand’s financial safety net, bringing New Zealand in line with international best practices,” Finance Minister Grant Robertson said.

“This means eligible New Zealanders will be provided economic security if their bank or other deposit-taking institution fails, while helping protect the country’s financial system and wider economy. The $100,000 limit will fully protect around 93% of depositors.”

RBNZ will manage the scheme

To access the government guarantee, New Zealanders will have to deposit their money in authorised deposit-taking institutions. That includes banks, credit unions, building societies and certain retail deposit-taking finance companies.

The RBNZ will be responsible for managing the scheme and ensuring depositors are compensated if an eligible institution fails.

“Coverage for the scheme applies on a per depositor, per institution basis. In a compensation payout scenario, amounts held in joint accounts at a single institution will be split equally across account holders and count towards eligible deposits, up to the coverage limit for each depositor at that institution,” according to the RBNZ.