1500 words

Plz help me with the matter I will draft the position paper.

You work at the policy department of one of the large banks in New Zealand, a country that has not

yet an explicit deposit insurance scheme. As part of your policy advisory work, you occasionally visit

the Treasury on The Terrace.

During your latest visit, the Treasury policy officer informed you about plans to introduce an explicit

deposit guarantee scheme (DGS), which would require all New Zealand banks to participate. Given

the results of the 2017 FSAP and the revision of the Reserve Bank Act, this was not real surprise of

course. At the meeting, Treasury officials showed you a summary of their DGS plans on a two-page

PowerPoint:

The DGS would cover deposits on a per-depositor basis, up to a value of $50,000 per

institution.

The plans include a backstop of government support in case of a shortfall of funds. This

backstop was approved by Grant Robertson shortly after he became the Minister of Finance

back in 2017.

The Treasury policy person explained that the motivation for the DGS was that uncertainty in the

world was on the rise given the raging pandemic, the weakening profitability of banks, and China's

ballooning debt. "This may increase the likelihood of a run that could destabilise our financial

system." The Treasury published a consultation paper last year as it was still busy deciding on important

parameters of the DGS.

Back at your office, you report the Treasury plans to your manager. She asked you to draft a

"position paper", a statement that your bank will post in pdf on its policy website to clarify your

bank's position on the DGS plans.

"I don't like this plan. I somewhere read that funding for the scheme should come from levies

collected from licensed deposit takers, i.e. a user-pays model where the costs are borne by

institutions and potentially depositors benefiting from the scheme." Our bank is potentially on the

hook for many millions of dollars. But, we have some time. Given that they are still working on a

consultation document, it is important to influence their thoughts a.s.a.p. The longer we wait, the

less influence we have." she said.

"I want the position paper to reject the DGS because we cannot afford it, at least, that is what I

think. But be constructive, suggest policy options that we deem acceptable. Treasury will not take us

seriously if we only say 'nay', 'nein', or 'no'. The DGS may become a reality, so it is better to present

a credible position, perhaps in line with other banks."

She then went on: "Here, take this 2014 IMF

paper by Demirg-Kunt, Kane, and Laeven. It has a comprehensive deposit insurance database,

which may be useful. But please read around, neither we nor Treasury are slaves of the IMF.