12 Oct 2011

Financial institutions favoured - CTU

10:51 am on 12 October 2011

A Reserve Bank scheme which will deal with future bank failures is being criticised for favouring the interests of big financial institutions over smaller depositors.

The Open Bank Resolution policy is expected to replace the Government's deposit guarantee, which runs out at the end of this year.

Under the new scheme, shareholders and unsecured creditors will share the initial losses from a bank's failure.

The Council of Trade Unions says that will leave ordinary depositors at a disadvantage because their deposits are usually unsecured.

Secured creditors are typically other banks and financial institutions.

Massey University banking lecturer David Tripe says the amount of secured funding used by the banks is now relatively small, but could grow significantly under the new plan, leaving ordinary depositors to foot the bill in the event of a bank failure.