Deposit Insurance Yes…this one NO!

 

When I started hearing about the deposit insurance that is being bandied about my heart sank and my gut churned. It is another badly thought out desperate  policy that could sink New Zealand.  Now I am not an economist so I will leave it to David Hargreaves to express some of my concerns.  He calls it, in an almost apologetic tone, a step too far, I say that step has the propensity  to take us over the edge

But a total blank-cheque guarantee? That’s a step too far.

and

 

Longer term, I think it is clear there should be some level of insurance. But it needs to be limited, for say deposits of up to $100,000.

If you start handing out blanket guarantees you take away any fear of failure on the part of people running the banks – and potentially give yourself bigger headaches later on. It is a fine line.

A financial institution has got to be allowed to think it can fail – theoretically to avoid the worldwide stupidity that we’ve had in the financial markets. If you know you can fail, well…

Another point is that a complete guarantee give the banks too much of an advantage over other forms of investment. Unless you also start to guarantee share investment (and a broker was actually suggesting that in Australia last week!), and other forms of investment, then the playing field is tilted too far toward the banks.

 

Maybe Labour should have taken more of a partisan approach and talked to another political party who has members who know a little about finances, not just leave it to the history teacher.

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