The future of Banking in New Zealand –Your money Your risk ?

If I gave you $10   to look after   or   if you like, hold in trust, would I expect you to use it to pay your debts?

If you could not pay your debts would I expect the Government to pay them for you   with my tax money?

So why are banks  any different?

There was a time when the banks were government owned and the government   backed the deposits  ,

In 1992 our government bailed out the BNZ to the tune of 380 million using public money to prevent the bank from collapsing.

In 2008 the US government bailed out their banks with $700 billion US . for the Americans  it meant  that the  “ free flowing credit and “market discipline is the best form of regulation” era is over” as quoted by Brian Gaynor

This collapse  is reported in an excellent  movie   called the  INSIDE JOB .  It is one which everyone should watch.

It is a fascinating  and  scary  Documentary  which  raises the question, how much more is going on out there that we are not being told about?

The movie starts with  the 2008–2010 Icelandic financial crisis.

As the movie shows this debt occurred because banks were lending sums greatly in excess of their actual investments and governments were persuaded by lobby groups not to legislate against this.

There are three factors   which have heightened the vulnerability of the banking and corporate sectors .

1.       Credit boom -through which we saw lending  like never before and   the values of  our houses escalate  disproportionately to income

2.       Insufficiently regulated financial markets which saw the collapse of many finance companies, particularly those implicated in fraud.

3.       Corporations  and banks with large domestic and external debt.

Privatisation and the Global capital markets,  pushed poorly regulated domestic financial systems  while  those who should have protected the public   were  diverted  from this by lobbyists who had their noses firmly in the trough.

Greed was the driver and   due diligence   was absent, those running round in ties and suits   pretended to know it all when really like the rest of us they were just guessing. The only difference they were paid high wages   the rest of us stood to lose.

It may be that the Finance Minister saw the movie too  because on 11 march  he announced a consultation paper on the pre-positioning requirements that banks will be expected to comply with to fully implement the Open Bank Resolution (OBR) policy.

Open Bank Resolution is a long-standing policy option aimed at resolving a bank failure quickly, in such a way that the bank can be kept open for business, thus minimising stresses on the overall banking and payments system.

The Structure of the Reserve Bank of New Zealand’s Creditor Recapitalization (BCR) Project Process  is

  • Imposition of statutory management and closure of the bank
  • Imposition of the haircut on transactions accounts and term deposits
  • The failed bank reopens for core transactions business
  • Imposition of the haircut and other liabilities
  • Decisions on future operations and restructuring path

The  Reserve Bank invites submissions on this Consultation Paper by 30 June 2011

I t would appear that the public does not get an  input , I would  suggest that   each of us has to do their own due diligence  as to where you put your money   make the decision soon or there will not be one to make.

To do your home work  you may need to know who owns our banks  we  have done the research it is presented in this document   banks well worth a look

3 Responses to “The future of Banking in New Zealand –Your money Your risk ?”

  • There is nowhere that we can leave your own money that has a zero risk. As you suggest, we do need to do our own diligence. And the rest is up to chance…Thank you for keeping us informed.

  • Good thing Gaynor isn’t right about the end of market discipline: with bank creditor recapitalisation set up on a hair trigger taking a haircut should be more of an expectation and should help keep them strong or fix them fast when they’re not.

    Bank’s don’t hold depositor funds on trust, they hold them on loan.

  • Consumer Eyes:

    One day the people will wake up to the fact that they are unsecured creditors with banks and insurance companies – but of course they dont get that until their money has actually disappeared. “It could’nt happen to me” syndrome is persuasive in NZ. Apathy wins every time. Strange how normal company structures have to rely on shareholders for a capital buffer, but large banks and insurance company institutions are able to use their customer’s funds as unsecured creditors to create a capital buffer. With very little accountability, that right to dip into the creditor pool of available funds soon turns into how do we milk it in the good times to create shareholder value? To date that has been mainly via fees. This new move should be applauded for creative thinking.

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