More Bank Guarantee Scheme Details

November 2, 2008 New Zealand Finance  No comments

The Government has released concrete details about the new Bank Deposit Guarantee Scheme, specifically about its Wholesale deposit section.

Of the most interest in the new set of details is discussion on the pricing of the so called New Zealand Wholesale Funding Guarantee Facility, which can be read here. It seems that the Wholesale Guarantee Scheme has been priced above that of the Australian and American equivalent, although it is below that of Canada.

The fees that are charged on the use of this facility vary depending on the term of issue and the credit rating of the issuer. Issuers with a credit rating of AA- and above, A- to A+ or BBB- to BBB+, will yield a fee of 85, 145 and 195 basis points, respectively, if it is on a one year term. On a two year term the fees will be 140, 200 and 250, across the same groups. The pricing indicated would appear to be fluid, according to the papers released by the treasury, and can be adjusted if needed, by the Secretary to the Treasury.
The Wholesale Funding Guarantee Facility is not a permanent fixture in the New Zealand financial scene. The released guidelines say that if market conditions were to return to “relative normality” the scheme could be withdrawn for new issues.

As the government aims for banks to evaluate the need of the Wholesale Funding Guarantee Facility before participating in it, it has been confirmed to be an opt-in scheme, with no banks or facilities required to participate.