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Crown Guarantee Schemes

The Crown Guarantee Schemes work programme was spread across two appropriations in 2010/11, including on PLA. They were:

  • Crown Guarantees Schemes, and
  • Administration of Guarantees and Indemnities Given by the Crown PLA.

Scope of Appropriations

In the order listed above are:

  • Crown Guarantees Schemes - This appropriation is limited to the implementation and operation of the Crown's Deposit Guarantee Scheme (DGS) and Crown's Wholesale Funding Guarantee Facility (WFGF) excluding expenses incurred in connection with administering claims under a guarantee or indemnity given under the Scheme.
  • Administration of Guarantees and Indemnities Given by the Crown PLA - This appropriation is limited to expenses incurred in connection with administering of guarantees and indemnities given by the Crown, as authorised by section 65ZG of the Public Finance Act 1989.

All work related to DGS in the 2010/11 year is captured under the Crown Guarantee Schemes appropriation following the combination of the previously separate appropriations for Crown Deposit Guarantee Scheme and Crown Wholesale Guarantee Facility from October 2009.

Significant Work Completed During 2010/11

  • An accelerated payment process was developed and implemented, to minimise the costs to the Crown when paying depositors of SCF.
  • Entities in the Scheme continue to be actively monitored, with the monitoring process being brought in-house for the extended scheme.
  • Monitoring processes have been put in place for the receiverships of entities whose investors have been paid out under the Scheme. Receivers have provided updated estimates of the expected recoveries under the Scheme.
  • High-level monitoring of the bonds issued under WFGF continues.
  • WFGF was closed in April 2010. The value of securities issued with the benefit of the Crown guarantee will reduce over time as these securities mature. The last guarantee certificate is due to expire in October 2014. Any remaining work related to these issuances in the 2010/11 year is captured under the Crown Guarantee Schemes appropriation following the combination of the appropriations for the retail and wholesale schemes from October 2009.

Administering payments

  • Payout of investors of all entities that failed under the original guarantee scheme was completed in a timely manner.
  • An accelerated payment process was developed and implemented for SCF to enable the costs to the Crown of failure to be minimised.
  • In order to address matters of public interest in SCF, documents related to SCF's inclusion in the Scheme, monitoring while in the Scheme, its ultimate failure and the Crown's payout of its investors were proactively released to the public.
  • Payout processes were updated and refined to reflect the changed nature of the guarantees in the extended scheme.
  • As at 30 June 2011, 79% of guaranteed deposits in Equitable Mortgages Ltd (EML), the sole entity under the extended scheme to have failed, had been paid out. On average, payments were made within 25 days of receipt of a completed claim form.
Statement of Service Performance for Output Class - Crown Guarantee Schemes
Performance Dimensions for 2010/11 Target Performance for 2010/11
Development and implementation of an overall plan for managing the Crown interests including default events. Achieved.

Achieved.

This work is ongoing, with particular attention being paid to minimising the cost of failure, providing smooth and timely payout processes and monitoring of entities in receivership. 

Active monitoring of guaranteed institutions is undertaken to minimise Crown exposure.  Achieved.

Achieved. 

Ongoing with regular reporting from RBNZ under the original scheme having been brought in-house for entities under the extended scheme.  Monitoring reports were supplemented by engagement with the entities themselves, requests for information under the Guarantee Deeds and inspections where necessary. 

The Treasury actively manages the Crown interests in the event of a specific default.  Within 7 days of default.

Achieved. 

A structured plan was implemented to ensure the Crown's key requirements were met for all entities that defaulted. 

Administration of Guarantees and Indemnities Given by the Crown PLA

     
No unnecessary delays in processing applications. Achieved.

Achieved. 

All investors in entities that defaulted under the original scheme were paid out in a timely manner.

Under the extended scheme, timeliness of payment is determined by the speed with which creditors submit their claims.  As at 30 June 2011, 79% of depositor funds in EML had been paid out, with claims paid on average within 25 days of receipt of claim, although simple claims are paid on average within 15 days. 

Accuracy of payouts. Achieved.

Achieved. 

Payments have been made to more than 11,000 depositors with no unresolved queries on the amount paid.  This number excludes SCF depositors who were paid out by the Trustee. 

 
Cost - Crown Guarantee Schemes
2010
Actual
$000
Crown Guarantee Schemes 2011
Actual
$000
2011
Main Estimates
$000
2011
Supp. Estimates
$000
2,520 Expenses 1,323 3,717 2,739
 

Funded by:

     
2,520 Revenue Crown 1,297 3,674 2,716
- Other revenue 26 43 23
Cost - Crown Deposit Guarantee Scheme
2010
Actual
$000
Crown Deposit Guarantee Scheme 2011
Actual
$000
2011
Main Estimates
$000
2011
Supp. Estimates
$000
437 Expenses - - -
 

Funded by:

     
383 Revenue Crown - - -
54 Other revenue - - -
Cost - Crown Wholesale Guarantee Facility
2010
Actual
$000
Crown Wholesale Guarantee Facility 2011
Actual
$000
2011
Main Estimates
$000
2011
Supp. Estimates
$000
141 Expenses - - -
 

Funded by:

     
134 Revenue Crown - - -
7 Other revenue - - -
Cost - Administration of Guarantees and
Indemnities Given by the Crown PLA
2010
Actual
$000
Administration of Guarantees and
Indemnities Given by the Crown PLA
2011
Actual
$000
2011
Main Estimates
$000
2011
Supp. Estimates
$000
2,475 Expenses 3,094 4,440 6,551
 

Funded by:

     
2,455 Revenue Crown 3,048 4,418 6,475
20 Other revenue 46 22 76

The Crown Deposit Guarantee Schemes was under-spent by $1.416 million (52%) compared to Supplementary estimates. A contingency of $1 million was retained owing to the inherent uncertainties of the Scheme, the riskiness of the guaranteed entities and the market in which they operate, and the complexity of the guarantee itself. This will be transferred to 2011/12.

PLA expenditure was $3.457 million (53%) under-spent owing to slower payout than planned, increased efficiency of payment by outsourced partner and completing legal analysis within the Treasury. An amount of $1 million will be transferred to 2011/12.

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