The DTA provides for new supervision powers and a framework for managing and resolving a deposit taker in financial distress.
It gives the Reserve Bank greater power to monitor deposit-taker stability and step in if a deposit-taker’s financial situation or business practices are putting depositors’ money, and New Zealand’s financial system, at risk.
The Depositor Compensation Scheme, which became operative mid-last year, was also created under the DTA.
This sees all banks and NBDTs pay levies into a government-guaranteed pot, which can be tapped into to reimburse depositors if an institution collapses.
The scheme will see depositors get up to $100,000 of their money back from a failed deposit-taker.
The idea is that the existence of the scheme strengthens the financial system. If people know that at least some of their money is guaranteed, they are less likely to panic and withdraw it during a crisis, contributing to a collapse.
The Reserve Bank currently licenses 14 NBDTs, which hold a tiny fraction of deposits made in New Zealand.
None of these NBDTs include fintechs that are becoming increasingly popular around the world for offering banking-related services.
However, Revolut, is in the process of trying to obtain a banking licence from the Reserve Bank.
The Reserve Bank said the bank branding change aligned with other countries, and followed public consultation last year.
It also aligned with a directive from the Government for the Reserve Bank to support competition in the way it carried out regulation.
“This change supports improvements in the competitive landscape and a consistent approach across deposit-takers, which was largely supported in consultation feedback,” McGregor said.
The change is due to take effect in December 2028.
NBDT Association spokesman and Xceda chief executive Daniel McGrath characterised the change as a “significant step forward in improving competition”.
“Competition and innovation in banking have already arrived globally. This announcement does a lot for homegrown institutions to be part of this transition,” he said.
“Together with the recent moves to even the playing field in regulatory capital settings, smaller institutions such as NBDTs will be better able to attract capital, provide innovative new products, and ultimately provide more choice for Kiwis.”
New Zealand Banking Association chief executive Roger Beaumont welcomed the change, provided NBDTs were regulated as heavily as banks.
“Most people know what a ‘bank’ is but may not be clear on what a ‘deposit-taker’ is, so it makes sense that businesses providing banking services call themselves banks so long as they are subject to the same high regulatory standards as traditional banks,” Beaumont said.
“That includes regulation that supports the strength of the banking industry through strong prudential and capital requirements, as well as conduct regulation to help ensure banks treat their customers fairly and lend responsibly.”
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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