The levies that banks, building societies, credit unions, and finance companies pay to the new Depositor Compensation Scheme (DCS) fund will reflect their size and riskiness, Finance Minister Nicola Willis said.

“The levy will be based on total deposits covered by the scheme, so the four largest banks will pay about three-quarters of the total,” Willis said.

Under the scheme, deposits up to $100,000 per depositor will be protected in the event of a deposit taker’s failing.

“The Government has decided on a risk-based approach to levy funding, which reflects the likelihood of a DCS payout occurring, the impact of the levy on entity soundness and the predictability of levy payments,” Willis said.

The levy will generally be risk-based; credit unions and building societies will pay a temporary flat levy until the new prudential regime is fully in force in 2028.

“This reflects careful consideration of the impact of the levy on entity soundness during a period of significant regulatory change for this sector,” Willis said.

The levies collected from deposit takers will be used to build up the DCS fund to make money available if compensation is needed. The Reserve Bank will collect the levies and administer the fund.

“Although the DCS legislation does not prescribe competition as one of the matters that may be considered in setting the levy, the Government expects the DCS to improve competition overall,” Willis said.

The DCS will cover retail deposits, current and savings accounts, and term deposits. Deposit takers’ websites will list these products.

“New Zealanders are more likely to be willing to switch deposit takers if they know their deposit is protected in the event of a deposit taker failing.”

Willis said she will monitor the DCS’s impact on competition and, if necessary, support a review of the relevant legislation.

- SunLive