Deposit insurance: Was it necessary in NZ
Posted October 13, 2008on:
We have Deposit insurance in NZ now.
I’m not sure. Even if it is the right thing to have (as Bernard Hickey on the Rates Blog suggests) I still fear that this sort of action leads to a signaling problem.
The act of committing to deposit insurance could suggest to people overseas that our banking system is also in meltdown. Fundamentally, people assume that the government may have some information that they do not. To external people our banks look safe, but seeing the fact that the NZ government has come in to offer an insurance scheme to banks may shake this view. This type of signaling issues is probably one of the reasons why the RBNZ didn’t cut rates a few days back.
I’m just a little uneasy, and I’m not sure why – I blame my educations focus on signaling models 😉
I’ll read the details and comment later tonight – if you want to comment now, yell at me in the comments section of this post 😉
Update: Good article by David Hargreaves. Note:
The decision by the Australian government (and let’s say that it WAS their decision) suggests a nervousness about the position of the Australian banks that hasn’t been indicated before. And that’s not a comforting thing.
Update 2: Forget about risk – the government will pay for it. Hmmmm.