Malcolm Turnbull and the Federal Opposition reckon the changes being planned to the Federal Government’s bank deposit guarantee will lead to higher interest rates if a premium is charged for deposits above $1 million.

As claims go, that is close to the most absurd statement that Malcolm Turnbull has made in his current burst of populism. If he hadn’t noticed, someone should remind him that all the banks have now passed on the 1% October 7 rate cut in full, meaning that they are in step with the Reserve Bank’s 1.25% of cuts since September. In fact the ANZ is little bit more.

But the comments by Mr Turnbull also show that he and his staff don’t read and keep in touch with what is going on around Australia (remember Malcolm and many journalists didn’t know or had forgotten that the other country with a guarantee similar to ours was Ireland, which started the whole absurd bidding war last month in a desperate attempt to protect its financial system).

If Malcolm and the baying poodles of the press gallery and The Australian had looked abroad, they would have discovered that New Zealand announced a comprehensive set of changes to its blanket deposit scheme (they are covering the basket cases known as finance companies there). That announcement was yesterday.

Why is NZ important? Our big four banks control 80% of the NZ banking market, so the details of the scheme there will have application here. The Kiwi changes will also mean that there won’t be arbitraging across the Tasman, between Australia and NZ.

If NZ has this system, with a cap, we have to have it. Speaking on AM this morning on ABC Radio, Malcolm Turnbull was unaware of it, or he ignored it. Malcolm didn’t seem to understand the difference between mortgage scheme and bank deposits. His plan wouldn’t have covered mortgage schemes. He also seemed to equate BHP and Telstra with “institutions” (i.e. financial institutions). BHP and Telstra are not. They are companies and have credit ratings lower than the big four Banks, and Australia.

The announcement was listed on the website of the Reserve Bank of New Zealand.

The Treasury and the Reserve Bank have today released amendments to the Crown Retail Deposit Guarantee Scheme announced on 12 October 2008. Treasury Secretary John Whitehead and Reserve Bank Governor Alan Bollard said today: ‘The objective of the two year opt-in scheme is to ensure ongoing retail depositor confidence in New Zealand’s financial system given the international financial market turbulence.’

The retail deposit guarantee scheme needs to engender confidence while continuing to ensure the efficient functioning of New Zealand financial markets. In pursuing this objective, a number of issues have arisen around pricing of the scheme and its coverage, and a number of technical changes (detailed below) are being announced today …

The following decisions have been made:

A cap on the size of deposit that is covered by the guarantee of $1 million per depositor per guaranteed institution

Fees for the new business component of registered banks and non-bank deposit takers that are not already subject to a fee charge as follows:

For entities whose covered liabilities are under $5 billion:

  • 10 basis points per annum to institutions rated AA minus and above;
  • 20 basis points per annum to institutions rated A+, A and A minus
  • 50 basis points per annum to institutions rated BBB+, BBB and BBB minus; and
  • 100 basis points per annum to institutions rated BB+ and BB.

These fees apply to the cumulative growth in the book since 12 October 2008 with an allowance of plus 10 percent per year on this amount. Growth will be measured, and charged for, monthly.

As announced last Wednesday, a fee of 300 basis points per annum will be charged monthly to non-bank deposit takers that are rated below BB or are unrated (on the cumulative growth in the book since 12 October 2008).

As an incentive for institutions that are unrated as at 12 October 2008 to become rated BB and above, if a rating of BB and above is achieved during the term of the retail guarantee scheme, the institution will be eligible for a rebate to give an effective fee of 100bps for the period they were unrated.