Treasury tweaks retail deposit guarantee scheme, Marac goes all in

Wednesday 18th November 2009

The Treasury has made some tweaks to the government’s retail deposit guarantee, giving non-bank deposit takers a “stand down” period in the face of a potential default before invoking the scheme, and prompted Marac, the finance unit of Pyne Gould Corp., to announce it intends to take up the extension.

The retail deposit guarantee will now allow participating financial institutions to offer both covered and uncovered debt securities, as well as giving them a 14-day stand down period to allow a company under threat time to avoid receivership if it’s able to resolve its issues.

The tweak also gives the government the ability to set a timeframe for claims to be made once a guaranteed deposit has defaulted. “Existing investments by eligible depositors are not affected by these changes – they continue to benefit from the current crown guarantee,” said Treasury’s director of financial operations Brian McCulloch in a statement.

“This change provides greater flexibility for deposit taking entities and improves consistency between the current scheme which ends on Oct. 12 2010 and the extension scheme.”

Finance Minister Bill English extended the scheme earlier this year, to the end of 2011, though deposit takers will require a BB or better credit rating to participate, and will face more punitive charges if they keep the coverage.

Marac confirmed it will take up the extension, joining South Canterbury Finance and PGG Wrightson, and chief executive Jeff Greenslade said the “changes provide deposit taking institutions more flexibility under the scheme and we are supportive of the amendments.”

The Treasury announced it increased provisioning for the retail deposit guarantee by $35 million to $863 million in the three months ended September, with some 73 institutions covered and deposits totalling $124.3 billion, of which $5.5 billion is in the non-bank sector.

Last week the Reserve Bank said it expects there to be some failures among finance companies covered by the retail deposit guarantee as they come to grips with the central bank’s new prudential requirements which come into effect next year.

Under the regime non-bank deposit takers will need to have a credit rating issued by Standard & Poor’s, Moody’s Investor Services, or Fitch Ratings, and will have to keep an 8% minimum tier 1 capital ratio.

Businesswire.co.nz

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