The government has confirmed it will guarantee wholesale
bank deposits in a scheme that it hopes will stop
the financial system running out of cash.
Photo courtesy of Breinbart.com
The New Zealand government confirmed Saturday it will guarantee wholesale bank deposits in a scheme that it hopes will stop the financial system running out of cash.
At the same time, it has secured a deal with banks to go easy on mortgage clients hurt by the recession.
Finance Minister Michael Cullen said the government would offer a wholesale funding guarantee facility to investment-grade financial institutions in New Zealand.
It has already offered a guarantee of up to one million New Zealand dollars (US $580,700) for retail deposits to stop worried customer pulling their money out. Other countries, including Australia, have started offering the same guarantee and there were fears that if New Zealand did not follow suit banks could run short of money to lend to businesses and households.
The problems were due to the international credit crunch drying up funds. Without the guarantee there were fears that banks' access to cash would dry up.
Central bank governor Alan Bollard said in a statement the primary goal of the guarantee was to support the re-entry of New Zealand banks to regular foreign markets to raise cash, though it could also apply to debt instruments raised in New Zealand.
There had been fears that banks based in New Zealand would have cash dry up as overseas investors stayed clear of any bank that did not have a government guarantee.
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Sources :
- Breitbart.com: New Zealand offers guarantee to stop banks running out of cash, November 1, 2008 12:48 AM
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