Jenee Tibshraeny: NZ Herald Wellington business editor on the Commerce Commission's suggestions to improve banking competition

The Commerce Commission has detailed several potential changes in a new 389-page report designed to improve competition in the banking sector. 

One change involves establishing a deposit compensation scheme that insures the first $100,000 of an individual or business’s savings at a bank, credit union, building society or finance company.

NZ Herald Wellington business editor Jenee Tibshraeny examines whether or not this is the way forward.

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Episode Transcript

Speaker 1 (00:00):
With me right now, we've got Jane TIBs Trainey, the
Herald's Wellington Business editor. Hello, Jenne, hey Heather. Now have
you seen the proposed changes to the deposit compost scheme
in the banking study?

Speaker 2 (00:11):
I have. So the Commics Commission, one of its findings
recommendations to improve competition in the banking sector is for
Nikola Willis to put more emphasis on competition than financial
stability when she decides how this new deposit compensation scheme
is going to be funded. So for people listening, this

(00:33):
is a scheme that will take effect mid next year.
It means that if your deposit taker, your bank, your
credit union collapses, you'll get up to one hundred thousand
dollars of your money back at the moment. If it collapses,
you might get nothing back. So the thorny issue with
this is is that it's going to be funded by
deposit takers paying levies into a fund. The Comments Commission

(00:55):
reckons the levee should be flat. The Reserve Bank reckons
the lev should be risk based, so you know, risky
finance companies should pay more than a low risk bank.
Nicolah Lis needs to decide which way she's going to go.
So bit of a test coming up for Nicolohil is
there is the.

Speaker 1 (01:13):
Thinking here that if it's risk based, you are not
going to put your money into the risky stuff because
it's going to cost your money. But if it's flat,
it just increases competition because it doesn't matter where you
put it, you're paying the same. Yeah.

Speaker 2 (01:26):
Look, the thing is is that if the small players,
like the finance companies, they are risky. They are saying
they don't want to pay higher levees into this fund
to reflect the risk because they all hit their bottom lines,
it will hit their profitability. So that's saying look, government,
if you really care about competition and if you want
to support us to compete with the big banks, then

(01:48):
don't make the levees risk based. But the Reserve Bank
is saying, well, look, everything in the financial system is
risk based. I mean, like the pricing of risk is
at the very heart of how the finance system works,
and it's important because you know, it incentivizes good behavior
and avoids the creation of a moral hazard. So two

(02:09):
quite different schools of thought there. And I know it
sounds rather technical, but everyone knows that if your bank
call your finance company or whatever if they charged higher
levees to support this new insurance scheme that comes back
on us as consumers. So the way the government divides
the cost of that scheme. You know, it's just something

(02:31):
that is quite significant and will show you know how
much it puts away on competition versus on financial stability.

Speaker 1 (02:38):
It's really interesting how there's heaps in there, you know.
Thanks so much, you know, to training The Herald's Wellington
Business editor.

Speaker 2 (02:44):
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