How to Fuel the economy and create growth – what is the RBNZ doing to assist?

The Deposit Takers Act will establish a new Depositor Compensation Scheme to protect up to $100,000 per depositor per deposit taker in the event of a failure.

I recently attended the Auckland Chamber of Commerce Business After 5 event at Okahu Bay chaired by Simon Bridges and the guest speaker Brent King, Managing Director of General Capital, l shared his perspective on the current economic landscape and offered practical advice for SMEs.

Brent has assisted the likes of 42 Below and Charlie’s list on the market and is passionate about giving NZers more choice than just the mainstream banks when it comes to funding business and placing deposits into savings for retirement.

One of the key topics he covered was the soon to be in place Depositor Compensation Scheme.

This will enable SME's to access working capital at places with easier Credit rules and local decision making to help fuel economic growth and reduce reliance on Australian owned banks.

Here are some details from the Reserve Bank of New Zealand:

Deposit Takers Act overview

The Deposit Takers Act 2023 (DTA) will contribute to New Zealand’s financial stability and New Zealanders’ well-being and prosperity, by ensuring the safety and soundness of the deposit-taking sector. 

The new legislation brings New Zealand into line with our international peers and will give New Zealanders the confidence that their eligible deposits are protected.

Depositor Compensation Scheme

To deliver our obligations under the Act, from mid-2025, we will be introducing a Depositor Compensation Scheme (DCS) to protect up to $100,000 per depositor (customer) per deposit taker (financial institution) in the event of a failure.

Protecting New Zealanders' deposits

The DCS will give New Zealanders peace of mind that their eligible deposits are protected if their deposit taker fails.

The products likely to be protected include savings accounts, transactional accounts, term deposits and equivalent accounts.

When will my savings be protected from?

The DCS is being prioritised ahead of the rest of the legislation coming into effect. It is expected to be operational from mid-2025, so that New Zealanders' deposits are protected as soon as possible.

Before the DCS comes into effect, we will provide deposit takers with guidance and resources to communicate the DCS to their customers. There will also be information on the RBNZ  website.

Key Points of the Scheme

1.      It covers each eligible depositor up to $100,000 per deposit taker in the event of a failure, when money is held in DCS-protected accounts.  

2.      Covers eligible depositors of banks, building societies, credit unions and finance companies that take retail deposits – known as ‘deposit takers’ – that are registered or licensed in New Zealand.

3.      The DCS will come into effect on 1 July 2025.

4.      Backed by the Deposit Takers Act 2023 - new legislation that strengthens our ability to supervise the financial system and act more quickly if a deposit taker is in trouble.

5.      Will be funded by New Zealand deposit takers.

6.      Will increase trust and security in the financial system that fuels our economy

What is Covered

• current accounts (sometimes called transactional or call accounts)

• savings accounts

• notice accounts

• term deposits.

These deposits must be held with a New Zealand registered or licensed bank, building society, credit union or finance company that takes retail deposits.

Speak to your deposit taker if you are unsure whether your money will be protected by the DCS.

What is not Covered

• bonds and other tradeable products

• managed investment schemes (including KiwiSaver and other retirement schemes).

The DTA will create a single, consistent and proportionate framework for regulating deposit takers: banks, credit unions, building societies and finance companies. 

RBNZ are currently developing regulations and standards that deposit takers will need to comply with under the DTA. The deposit-taking sector is being consulted and engaged with throughout this process, and they are providing valuable input into how the DTA will work in practice.