"Here in New Zealand the Reserve Bank is moving to add an Open Bank Resolution Policy (OBR) to tools it could potentially use in the event of a bank failure.
The implementation of OBR would see all unsecured liabilities that rank equally among themselves, including deposits, having a portion frozen. The Reserve Bank says the OBR policy could save taxpayers' more than NZ$1 billion regardless of whether there is a bank failure or not.
However, Norman points out that if a bank fails under OBR, all depositors will have their savings reduced overnight to help fund the bank’s bail out."
Green Party Hits Out at NZ Government's Cyprus-Style Solution to Bank Failures
And the Reserve Bank of New Zealand responds:
"If their bank fails, depositors have always needed to understand that deposits are not guaranteed. What OBR does is facilitate a rapid and orderly resolution of a bank failure – it does not change the fact that depositors and other creditor funds are at risk...
The New Zealand Government has looked hard at deposit insurance schemes and concluded that they blunt the incentives for investors and banks to properly manage risks, and may even increase the chance of bank failure."
Reserve Bank of New Zealand, Open Bank Resolution, 20 March 2013
One understands that in the event of a bank failure, pain will be apportioned to the shareholders and depositors in New Zealand banks. And it must certainly be an extraordinarily transparent financial system indeed so that depositors can properly assess risk, on a par with insiders.
But one might ask, in the event of a failure, what is the penalty for the politicians, the banking management, and their regulators?
Oh that's right, there are no banking failures permitted in New Zealand. So perhaps it is a moot question. But it does seem that the people of New Zealand have some concerns and questions about this and, dare it be said, an imperfect confidence in their central bank?
Confidence, gentlemen, is the key. Oui?
And so we pray for the best, but prepare for the worst.
"Those entrapped by the herd instinct are drowned in the deluges of history. But there are always the few who observe, reason, and take precautions, and thus escape the flood. For these few gold has been the asset of last resort."
Antony C. Sutton
