Oct 15, 2008

Herald: Fears Rise Of Deposit Plan Mess

Remember the media on Sunday and Monday on Clark's Deposit Guarantee Plan? Has anyone noticed a change in tone?

This from this morning's Herald

Victoria University professor of economics and finance Roger Bowden said there were a lot of unanswered questions about the scheme, but should it be extended widely to finance companies it would create "a horrendous mess".
With an explicit government guarantee, finance companies who generally make riskier loans and consequently pay higher interest rates "now need pay no more than the banks".
Meanwhile larger banks, including Kiwibank, which have more than $5 billion in deposits will have to pay a fee to participate in the scheme unlike their smaller and riskier finance company counterparts for whom it is free, effectively subsidising them.
It's screwed the natural pricing to hell and back," said Bowden. "The banks are entitled to very annoyed.