Run on NZ Banks?

[ExPat]

I recall from my visits to NZ that banks there are not insured in the sense that American banks have FDIC insurance for deposits. This release from New Zealand's Central Bank is rather ominous.

NEWS RELEASE
Date 30 June 2008
Time 2:00pm


Reserve Bank issues Statement of Intent

The Reserve Bank has released its Statement of Intent (SOI) for
2008-2011. Reserve Bank Governor Alan Bollard said the SOI has been
written in a period of considerable uncertainty in the outlook for the
economy.

"Over the last six months or so, economic activity has slowed down
markedly, while inflationary pressures, especially in fuel and food
prices, have continued to strengthen," Dr Bollard said.

Since August 2007, the financial system has withstood a severe test of
global financial markets, triggered initially by losses in the US
sub-prime mortgage market. The IMF has described unfolding events as
the largest financial shock since the Great Depression.

"The adjustment process might prove to be protracted. Further
volatility in world equity markets, exchange rates, and debt markets is
likely," Dr Bollard said. "In this environment, a key strategic
priority for the Bank is to strengthen its prudential liquidity policy
for banks."

Dr Bollard said the Bank is also implementing the new regulatory
arrangements for non-bank deposit-takers and the insurance sector. A
variation to the Bank's current five-year funding agreement has been
approved by Government to ensure suitably qualified staff can be
recruited to implement and administer the new arrangements.

At the same time, the Bank will ensure its management and systems
continue to provide good support for its monetary and financial
stability policy roles. A new econometric model is being introduced
into the monetary policy and forecasting process and an integrated
computer application is being built for collecting financial sector
statistics.

The Bank's SOI includes new 'Key Performance Indicators' for the Bank,
identifying the main non-financial measures and standards by which the
performance of the Bank can be judged. "These indicators will evolve as
we gain experience in how to use them," he said.

"Overall, this SOI reflects a strategic approach to ensuring the Bank's
ability to maintain stability in an uncertain environment," Dr Bollard
said.

You can view the SOI at the following link:
http://www.rbnz.govt.nz/about/whatwedo/soi2008.pdf

Media contact:
Mike Hannah
Head of Communications
Ph 04 4713671, 021 497418, mike.hannah@rbnz.govt.nz

[Cliff]

That's right there is no FDIC here.

Cliff

[SailingFan]

Originally Posted by Cliff

That's right there is no FDIC here.

Cliff

Here in the US, the FDIC doesn't really do what most think it does anyway.

The FDIC is supposed to insure individual depositors against a loss due to a bank going under. Sure, it still does do that, but it just doesn't come down to that anymore.

For the most part, the FDIC's current job is to take a bank that has hit the insolvency point and find a healthy bank nearby that will absorb the assets. It usually happens on a Friday. Unless you know an insider at the bank you will not hear about it until Monday morning when they issue a release stating that X bank is no more and all customer deposits are now located at Y bank. The customers never lose access to their money and no insurance comes into play.

[ExPat]

So what happens when a NZ bank fails?

[Cliff]

You lose your money.