By Jane Luscombe
South Canterbury Finance is the eighth company protected by the Retail Deposit Guarantee Scheme to fail.
The other seven owed their investors around $250 million.
It’s money that taxpayer is now forking out.
Business journalist Rod Oram has vivid memories of the moment two years ago when the scheme was born. There was a very real fear New Zealand banks could go under.
There’d been an unusual run on money after the global financial market seized up, despite New Zealand banks being rock solid.
“There were people out there who didn’t have faith in the finance system, who were stockpiling $100 bills,” says Mr Oram.
He says the country was at the top of a slippery slope.
“I don’t know if we could have got there but that was a risk no Government or Reserve Bank could have taken,” says Mr Oram.
All the main retail banks signed up to the guarantee scheme, followed by building societies, credit unions and finance companies – 72 in total.
It protected the investments of thousands of people.
But there’s the rub. Many of them enjoyed high interest rates with no risk, knowing the government would fork out if it all went wrong.
It’s a point not lost on the banks.
All the members paid fees to joint he scheme and this money has been shelled out to investors in the failed companies. The banks aren’t thrilled that they and their customers have been, effectively subsidising risky financial institutions.
“We took the steps that were necessary and without that the New Zealand financial system would have been in a significantly worse position two years ago when we were in the midst of that recession,” says Prime Minister John Key.
Mascot Finance was the first to benefit from the guarantee, going under seven weeks after signing up.
Since then, another seven companies have failed.
But Finance Minister Bill English is optimistic.
“We don’t anticipate much more call on it,” he says.
His words small comfort for the thousands who put their money into institutions that haven’t joined the scheme.
If they fail, there’s no guarantee they’ll get a cent back.
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