Tag Archives: RBNZ

New Zealand Banks “Pre-positioning” For Cyprus-Style Bail-In

15 Jul

New Zealand has joined with Europe, the USA, the UK, Canada, and Australia, in preparing to “bail-in” its banks.

Excerpted from Timeline For “Bail-In” Of G20 Banking System:

JUNE, 2013 – Reserve Bank of New Zealand releases its Open Bank Resolution (OBR) Pre-positioning Requirements Policy, stating that the OBR provides the flexibility to assign losses to creditors (meaning, bank depositors):

Reserve Bank of New Zealand, Open Bank Resolution (OBR) Pre-positioning Requirements Policy, June 2013 (click to enlarge)

Reserve Bank of New Zealand, Open Bank Resolution (OBR) Pre-positioning Requirements Policy, June 2013 (click to enlarge)

In Definitions, the OBR states that “‘Customer account’, ‘customer liabilities’, or ‘customer liability accounts’ are unsecured liabilities of the bank represented by a range of products such as cheques, savings and other transactional accounts and including term deposits, and that these are considered “in-scope for pre-positioning”:

Click to enlarge

Click to enlarge

The OBR further states that “The Implementation Plan is a key part of the documented evidence that pre-positioned arrangements to quickly close the bank, freeze a portion of customers’ claims to meet potential losses, and reopen the next business day and continue banking services, are in place”:

Click to enlarge

Click to enlarge

The first requirement for “Pre-positioning” is stated as being “That the bank can be closed promptly at any time of the day and on any day of the week, freezing in full all liabilities and preventing access by customers and counterparties to their accounts”:

Click to enlarge

Click to enlarge

New Zealand’s version of the FSB-directed bank “bail-in” regime appears even worse than the rest of the West.

Unlike the others, New Zealand does not even have the pretence of a “government guarantee” or “deposits insurance” scheme for small depositors.

From Voxy.co.nz –

“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.

“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.

“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”

Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.

“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

“OBR is not in line with Australia, which protects bank deposits up to $250,000.

Unfortunately, all the “deposit insurance” schemes in the West are not worth the paper they are(n’t) written on.

Cleverly, the FSB’s new G20 “bail-in” regime reclassifies customer deposits as “equity” in the failing bank, or, in a new “bridging” bank (ie, “recapitalisation”). This makes the customer’s “stake” — formerly a deposit — in that “new” bank liable for forfeiture.

More on this in future posts.

New Zealand lawyers Buddle Findlay have a helpful explanation of the unique way the kiwi OBR scheme will work:

In practice what has happened in Cyprus is very similar to what the OBR Policy is asking New Zealand banks to preposition for here. In essence, as in Cyprus:

Deposits of up to an undetermined amount (called “the de minimis”) may be protected in a bank failure (or, as in Cyprus, potentially a banking system failure); and

Amounts over the de minimis can be frozen in whole or in part (the RBNZ call this the “haircut”) and these amounts are effectively used to absorb losses in the failed bank or, as in Cyprus, banks.

The table below shows how the freeze would work but picks a much lower de minimis balance than the €100,000 ultimately agreed as politically acceptable in Cyprus – which seems to be consistent with the RBNZ’s intentions to have a relatively low de minimis.

Buddle Findlay lawyers, New Zealand 'Open Bank Resolution' scheme (click to enlarge)

Buddle Findlay lawyers, New Zealand ‘Open Bank Resolution’ scheme (click to enlarge)

See also:

G20 Governments All Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

Australia Plans Cyprus-Style “Bail-In” Of Banks In 2013-14 Budget

The Bank Deposits Guarantee Is No Guarantee At All

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