Consultation

Second Stage Consultation on Statement of Funding Approach – Funding Strategy for the Depositor Compensation Scheme

Funding strategy for Depositor Compensation Scheme#

Te Tai Ōhanga – The Treasury has opened the second stage of public consultation on the funding strategy for the Depositor Compensation Scheme (DCS), to be established by the Deposit Takers Act 2023. This consultation runs from 6 May to 31 May 2024.

The consultation document is available here:
 

Purpose of this consultation#

The Deposit Takers Act 2023 requires the Minister of Finance (Minister) to publish a Statement of Funding Approach (SoFA) for the DCS at least every five years. A first stage public consultation on the SoFA was completed last year, with key proposals about whether to implement a target fund approach. Following feedback from the first stage consultation, the Minister has decided to target a fund size of 0.8% of protected deposits over a 20-year timeframe.

This second stage consultation paper communicates the implications for targeting a 0.8% fund over 20 years and seeks feedback on outstanding issues of a more operational and technical nature, including:

  • expectations for how future SoFA documents would be adapted when fund targets are met and/or the DCS fund is drawn on, in response to feedback from the first consultation
  • estimates of the costs associated with the DCS, including updated estimates of the cost of a failure event and information on expected establishment costs, and business as usual running costs
  • the investment objectives and authorised asset classes that should apply when investing the DCS fund
  • the proposed approach to implementation of the Crown backstop, including how the cost to the Crown of providing liquidity to the DCS will be covered through levies.

The Treasury will use submissions from both rounds of consultation to help inform the creation of the first SoFA.

Questions about the consultation process can be sent to [email protected]

How to make a submission#

This template is a useful guide for preparing a written submission:
 

Written submissions can be sent to the Treasury in the following ways:

  • As an email attachment sent to [email protected]
  • By post addressed to Financial Markets, The Treasury, PO Box 3724, Wellington 6140

Te Pūtea Matua – Reserve Bank of New Zealand has previously consulted on the levy framework for the DCS and is consulting on the DCS Regulations from 11 March to 10 May 2024 – this includes consultation on the design of the DCS levies (see the Reserve Bank website). As the funding strategy and the design of the DCS levies are related matters, the Treasury will share with the Reserve Bank any parts of submissions on the second stage consultation on the SoFA that are relevant to the Reserve Bank’s consultation.

Background#

The DCS is expected to be in place in mid-2025. It will compensate up to $100,000 for each depositor per licensed deposit taker in the event a deposit taker fails. The DCS aims to contribute towards protecting and promoting the stability of New Zealand’s financial system by protecting depositors and allowing the DCS fund to be used in the unlikely event of a deposit taker failure. A robust funding framework is needed ahead of the DCS being implemented, to ensure the DCS can meet its commitments.

The Deposit Takers Act 2023 that will establish the DCS is the second phase of reform of the Reserve Bank of New Zealand Act 1989. The first phase was the passage of the Reserve Bank of New Zealand Act 2021. This legislation modernises the institutional arrangements of the Reserve Bank, provides a clearer financial policy mandate for the Reserve Bank focussed on promoting financial stability, and requires the Minister of Finance (the Minister) to issue a Financial Policy Remit to the Reserve Bank.