24 Apr 2009

'Safety net' urged after end of deposit guarantee

10:09 am on 24 April 2009

New Zealand needs to move to a deposit insurance scheme when the Government deposit guarantee ends next year in order to avoid finance company failures, consultancy firm KPMG says.

The company argues that if investors move the large amount of money due to mature before October 2010 to relatively safer havens, it could spark a wave of finance company failures at the taxpayer's expense.

KPMG head of financial services Godfrey Boyce says the scheme needs to be extended for a year, to be in line with Australia's.

He says that should be accompanied by a re-think of the pricing of the scheme, and which firms it covers.

Mr Boyce says there needs to be a safety net when the deposit guarantee scheme ends, and believes New Zealand will end up with a form of deposit insurance.

He expects the number of firms in the sector will ultimately reduce to no more than 15 large companies, though the deposit guarantee scheme has delayed this move.