New Zealand following Cyprus lead?

While we are constantly getting told by our resident collectivists how well their particular socialist paradises are doing, I must admit I was suprised that one of those paradises is looking to follow in Cyprus’ confiscatory practice to fix their financial woes footsteps:

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.

“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.

If they are doing so great, why the need to do this? Inquiring minds want to know. CM, can youre details on this bro?

Comments are closed.

  1. Hal_10000

    Wow, what a stupid idea. Not only will investors flee New Zealand, it will encourage banks to take bigger risks because they know they can always tap their investors!

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  2. CM

    While we are constantly getting told by our resident collectivists how well their particular socialist paradises are doing, I must admit I was suprised that one of those paradises…

    How on earth do you conclude that NZ is a socialist paradise? We’re always at or near the top of every league-table when it comes to economic freedom? You may need to update your information by about 30 years Alex.

    If they are doing so great, why the need to do this?

    Wouldn’t every responsible government in the world be considering what their options would be in the case of a large bank failing? It would be remiss for them not to.

    New Zealand banks are readying their IT systems for Open Bank Resolution, a Reserve Bank policy that in extreme cases like insolvency would see a bank’s losses shouldered in part by its shareholders and creditors – including everyday depositors.

    The Reserve Bank has the power to freeze bank deposits but up to now has lacked the technical infrastructure to implement it – hence their requirement for banks with retail deposits of more than $1 billion to change their systems and meet their requirements by July 1.

    Under the policy, which can only be activated by the Minister of Finance, if a bank fails a statutory manager is appointed to calculate the bank’s liabilities.

    The statutory manager can then freeze a percentage of customers’ bank deposits to cover those liabilities before it reopens the next trading day.

    Auckland University Professor of Banking and Financial Institutions David Mayes said OBR was an efficient and simple method to deal with failing banks that would not see chaos caused in the banking system or costs passed on to the taxpayer.

    New Zealand Bankers Association chief executive Kirk Hope said an IMF report showed New Zealand had a strong, stable and well-capitalised banking system with plenty of liquidity and Kiwis could feel confident.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10872361

    Hard for me to get too upset about this. Our banks are in excellent shape. They are heavily regulated with significant over-sight.

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  3. ilovecress

    First let me say that I’m no fan of this idea. And it is precicely the fact that the banks are doing so well that they can even float this idea. But the justification behind it is actually to keep the Government out of Bailout solutions and to encourage a private sector solution. To sort of suggest that a Government bailout isn’t an option. but without saying that – because that would effect the credit rating.

    And then the idea is that your shareholders ‘regulate’ the Bank, because they would be liable for any losses, without the freedom of knowing that they have a Government bailout to catch them. (Bear in mind our Banks are actually owned by Australia) – so in essence, the Kiwi taxpayer isn’t going to pay for the mistakes of a bunch of Aussie executives.

    It doesn’t sit well with me though

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  4. Seattle Outcast

    How on earth do you conclude that NZ is a socialist paradise?

    Well, you live there. But I see your point – you’re actually a Marxist….

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  5. Mississippi Yankee

    Hard for me to get too upset about this. Our banks are in excellent shape. They are heavily regulated with significant over-sight.

    Ah yes, please repeat the Mantra with me:
    “Om, it can’t happen here, Om…”

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  6. CM

    (Bear in mind our Banks are actually owned by Australia) – so in essence, the Kiwi taxpayer isn’t going to pay for the mistakes of a bunch of Aussie executives.

    Not all of them. I recently switched over to Kiwibank. There is also the Co-operative Bank, TSB, and the Southland Building Society.

    Well, you live there. But I see your point – you’re actually a Marxist….

    You’re right that I live here. Given how infrequently it happens, it’s important to congratulate you when you get something correct.

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  7. grady

    I see that this is more of a plan of action for the future, rather than a current necessity to “save” a bank. Maybe I am reading things wrong.

    It still sounds like theft from peoples accounts who had nothing to do with the bank’s transgressions, if in fact the bank’s operating principles were the reason for the failure. I don’t see any difference between this and the US government’s theft of American’s taxes to bail out companies (banks included) that had crappy business practices. It’s just restricted to the investors in the subject bank.

    If the banks are required to show daily balances of total deposits and let their members know what their deposits, investments and overall risk are, this may be a much better private market solution. Simply shop for your bank by checking out which guys invest like idiots and which ones actually keep proper reserves.

    Your bank may now be like investing in the market. You have to decide if you want to be associated with more risk or not. I’m assuming the riskier banks would offer greater interest rates to attract your deposits.

    it will encourage banks to take bigger risks because they know they can always tap their investors!

    If the investors know what the bank is doing, I don’t think this will happen. It’s all just investment vehicles with certain risks associated. If there is no transparency into the banks operations and business management, then it’s just going to be theft from depositors.

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  8. ilovecress

    Quite frankly, I don’t know where you guys get off speculating and commenting on the political and economic news of a different country. Do you go to Swedish blogs and have a go at their banking bailout plans as well? You could never get it, so why don’t you guys worry about your own financial regulations and leave us Kiwis to worry about ours. Trolls.

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  9. CM

    I see that this is more of a plan of action for the future, rather than a current necessity to “save” a bank. Maybe I am reading things wrong.

    No, you’re reading it right.
    “If they are doing so great, why the need to do this?” is the usual misdirection.

    It’s just restricted to the investors in the subject bank.

    That’s what’s being proposed here. It would be the shareholders and creditors that could potentially save it from going down the drain.

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  10. CM

    We’re no Cyprus, says Reserve Bank

    New Zealand’s Open Bank Resolution (OBR) policy is “markedly different” from proposals to resolve the banking crisis in Cyprus, Reserve Bank deputy governor Grant Spencer said today.

    Spencer, in a statement, said OBR would help to facilitate a “rapid and orderly” resolution of a collapsed bank.

    He pointed out that depositors’ money has never been guaranteed, apart from temporary periods, such as under the Government’s deposit guarantee scheme from late 2008 to December 2011.

    “If their bank fails, depositors have always needed to understand that deposits are not guaranteed,” Spencer said. “What OBR does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk,” he said.

    The New Zealand Government had looked at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure.

    “Deposit insurance is widely used in Europe, including Cyprus, but hasn’t prevented banking failures, as we saw during the global financial crisis,” Spencer said.

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  11. ilovecress

    I’ve heard speculation that this was Germany’s plan all along – to force Russia to step up to the plate.

    Being bailed out by Russia. Like being given camoflage advice by a Kardashian.

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  12. Mississippi Yankee

    Look like even Cyprus isn’t Cyprus. The ECB plan went down in flames.

    This is your attempt at comedic relief right?

    All the damage was done the moment this plan was spoken aloud. Do you have any earthly idea how many run on how many banks, throughout the world not just Europe, this ill conceived idea caused?

    No probably not… it doesn’t fit your narrative™

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  13. Mississippi Yankee

    I’ve heard speculation that this was Germany’s plan all along –

    My only question is will Frau Merkel go with the traditional brown shirt or might she go with something with a bit more color?

    Who am I kidding she’s East German, brown it is…

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  14. Xetrov

    encourage a private sector solution.

    Being mandated by government regulation would by definition not be a “private sector solution”. That’s kinda like claiming Obamacare is a “private sector solution” because it forces everyone to have health insurance with a private company. People should be able to opt into accounts with banks that have this setup, and it should be part of the account agreement for it to be a true private sector solution. Government should simply say “Manage your shit well, we are not bailing you out”.

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  15. Dave D

    Xetrov: Maybe my understanding of the Eurozone is not adequate, but don’t they HAVE to prop up countries when they have huge defectis to protect the currency?

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  16. Xetrov

    Dave – I’m pretty sure New Zealand isn’t in the Eurozone.

    As far as what the EU countries are or are not required to do (IE: Cyprus), I couldn’t say if that’s part of the EU charter or not. I don’t think arbitrarily confiscating 10% of someone’s savings by government edict should be legal anywhere for any reason.

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  17. AlexInCT *

    How on earth do you conclude that NZ is a socialist paradise? We’re always at or near the top of every league-table when it comes to economic freedom?

    If that is true, why the need to do this sort of confiscation CM?

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  18. AlexInCT *

    As far as what the EU countries are or are not required to do (IE: Cyprus), I couldn’t say if that’s part of the EU charter or not. I don’t think arbitrarily confiscating 10% of someone’s savings by government edict should be legal anywhere for any reason.

    Being illegal has never stopped collectivists from doing what they want or feel is needed to keep the gravy train going….

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  19. grady

    People should be able to opt into accounts with banks that have this setup, and it should be part of the account agreement for it to be a true private sector solution. Government should simply say “Manage your shit well, we are not bailing you out”.

    That is exactly what I thought was happening. The bank will not be bailed out by the govt. Any bank losses will be covered by the depositors. If the depositors have actual information on the bank’s deposits, savings, investments, etc, then they can make up their own mind on whether they will do business with this bank.

    Again, if the depositors have no transparency into the bank’s operations, then this is just theft limited to the banks depositors.

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  20. Mook

    Hard for me to get too upset about this. Our banks are in excellent shape. They are heavily regulated with significant over-sight.

    Just 1 1/2 yrs ago, 3 of the largest Cypress banks and all of the Spanish banks passed the Euro “stress test” with flying colors… just sayin’.. something to think about for anyone living anywhere who believes that bank account confiscation “can’t happen here”.

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  21. CM

    If that is true, why the need to do this sort of confiscation CM?

    What do you mean “if it is true”. It is. Look it up.

    There is no confiscation. No banks are in trouble, even remotely. As I already said, any prudent government will decide, ahead of time, what plan they’d follow. Do you implement some sort of scheme (OBR, deposit insurance), or do you actively do nothing and then have to make the hard(er) choices in the event that something does happen. Like a bailout, or letting everything turn to complete shit (in which case the bank’s customers aren’t going to do very well anyway). In this case the Government (which is centre-right) has opted for a system whereby the banks customers, rather than the taxpayer, may be the first port of call if the bank gets into trouble.

    Just 1 1/2 yrs ago, 3 of the largest Cypress banks and all of the Spanish banks passed the Euro “stress test” with flying colors… just sayin’.. something to think about for anyone living anywhere who believes that bank account confiscation “can’t happen here”.

    Sure, but it’s still a remote possibility. And I’d rather a system be in place before it happens. At least then we all know what we’re buying into and can make the appropriate decisions. The risks aren’t really going to be any different. Well, they’ll be less if you’re a taxpayer but don’t have a lot of bank deposits (like me for example – I operate our mortgage as a bank account….there is never any more than about $500 in any other account).

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  22. Mook

    And I’d rather a system be in place before it happens.

    The deal is, there was a “system” in place in Cypress with 100,000 Euro deposit insurance. The point is, when things start to unravel, the govt. systems which you have such great faith in don’t mean squat. Those depositors are likely to get screwed, despite government systems, alleged protections and assurances from the govt.

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  23. Mississippi Yankee

    Quite frankly, I don’t know where you guys get off speculating and commenting on the political and economic news of a different country. Do you go to Swedish blogs and have a go at their banking bailout plans as well? You could never get it, so why don’t you guys worry about your own financial regulations and leave us Kiwis to worry about ours. Trolls.

    Cress, are you starting to get some type of an inkling as to how we feel about CM and yourself telling us how to run our own country?

    Or was this your attempt at comedic relief?

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  24. CM

    I don’t disagree with that at all. My preference for a system to be in place doesn’t mean I have faith that it will stop disaster.

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  25. Xetrov

    That is exactly what I thought was happening. The bank will not be bailed out by the govt. Any bank losses will be covered by the depositors. If the depositors have actual information on the bank’s deposits, savings, investments, etc, then they can make up their own mind on whether they will do business with this bank.

    As current holders of accounts with those banks, the Government is authorizing the bank to take 10% of their savings, and forcing ALL banks to comply with the new regulation. It’s not a matter of private choice to select a bank that does or does not choose to partake in this brand of risk. The Government is mandating it. So, no, what I said about a private sector solution isn’t even close to what is actually happening.

    The Government is basically saying Banks can go belly-up and steal from people who had money vested in the bank before the regulation was passed. A tidy retro-active legal theft by Mr. Too-big-to-fail Bank, so that the Government can’t be blamed for using taxpayer funds directly to help Mr. Too-big-to-fail Bank. Under any circumstances, what NZ/The EU is suggesting is theft in the most positive term I can think of to describe it.

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  26. CM

    Or was this your attempt at comedic relief?

    It totally hit the spot. Alex knows more about NZ than I do apparently. We’re a socialist paradise on the verge of a banking collapse. The LSM just ignore it because it doesn’t match their narrative man.

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  27. CM

    Xetrov, isn’t the government providing greater information so that people can factor that into whether they put/keep their money in banks or not? I’ve not heard that those with existing bank accounts will not be able to close their accounts and take their money out (i.e. make a free market choice).

    These days deposit accounts are only one aspect of one type of financial institution. Why should those who, after weighing up the options taking into account the available information, decide not have deposit accounts subsidise those who do (in the knowledge that there was a risk, should the bank go belly-up)?

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  28. ilovecress

    Xetrov – you’re essentially right. The main point is that English is taking nationalisation of the banks off the table. (I doubt you’ll ever hear him say those words though) In the event that a bank fails today and the Government doesn’t step in, depositors (and shareholders) would lose (or have ‘frozen’) ALL their money. Under this scenario a ‘conservative portion’ of the assets would be frozen – so you’d still be able to get most of your money.

    It’s probably more accuate to say this is a public sector solution to the problem of there not being a private sector solution right now. It’s a sh*t sandwich, T*rd bap scenario.

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  29. Xetrov

    Xetrov, isn’t the government providing greater information so that people can factor that into whether they put/keep their money in banks or not? I’ve not heard that those with existing bank accounts will not be able to close their accounts and take their money out (i.e. make a free market choice).

    My issue with it is that this is Government forced, not a private sector solution to a problem, as was alluded to. There wont be banks to put your money in that are not subject to this regulation, freeing up all banks to be more risky with their assets because they know at any point in time if it gets to bad, they can just take money from their customers. I can already see a potential step two of this – say a majority of people start saving their money outside of the country (after all, it is a global economy) – I certainly would. Well, the government can’t have that, so new taxes, or new restrictions on saving money outside of the country. Since the banks can’t be allowed to fail, what’s next? Mandated savings accounts? Then we can randomly search under people’s mattresses, and confiscate whatever they find. Johnny’s piggy-bank is now property of the Government. It’s slippery-slope, but you can’t put it past some of the idiots in power to try such schemes.

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  30. ilovecress

    There wont be banks to put your money in that are not subject to this regulation, freeing up all banks to be more risky with their assets because they know at any point in time if it gets to bad, they can just take money from their customers.

    Again, I don’t necessarily disagree with you overall, but just to explain the reasoning…

    the idea is that the banks will self regulate with this – under the current scenario, the Banks can be a secretly risky as they like, because they know that New Zealanders have no choice but to bail them out if they go belly up.

    Under the new system, the idea is that the shareholders (and ideally the depositors) will hold the Bank way more accountable for their decisions, because they have skin in the game.

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  31. CM

    Under the new system, the idea is that the shareholders (and ideally the depositors) will hold the Bank way more accountable for their decisions, because they have skin in the game.

    Exactly.

    I’m always very wary of ‘slippery-slope’ arguments. Taxing money being saved outside the country would be a huge step from what is happening here (which is providing a POSSIBLE mechanism for what COULD happen SHOULD a bank fail, and doing so openly so people can make decisions accordingly).

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  32. Xetrov

    Again, I don’t necessarily disagree with you overall, but just to explain the reasoning

    Understood. I get the reasoning, I just don’t agree with the Government forcing it, especially on people with existing accounts that were not opened under such a threat to their savings. And as far as why banks think they can rely on taxpayers to bail them out is beyond my capability to rationalize.

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