New Zealand More Transparent Than Cyprus

The media, as usual, has missed the wood from the trees with respect to the “crisis” in Cyprus.

When you deposit money in a bank, you are an unsecured creditor.

You are not in a “special relationship” as many journalists and talking heads want to tell you.

Once you have deposited the money in the bank, it is no longer “yours”.

When you transfer $1,000 from your current account to your savings account, a bank employee does not wheel $1,000 worth of notes from one part of the vault to the other.

A bank is not a cash storage facility, it is a business that aims to make a profiting borrowing low and lending high – earning what is called an “interest rate spread”.

Therefore, while your cash holdings might be backed by an explicit or implicit government guarantee, there is always the risk that you will get “bailed in”.

Comments in New Zealand disparaging Open Bank Resolution clearly miss the fact that the whole development of OBR has been very transparent.

I recommend reading “A primer on Open Bank Resolution” from the Reserve Bank if you have a banking relationship with a New Zealand bank.

It is very clear that New Zealand’s plan for dealing with a major bank collapse is significantly more transparent than what has happened in Europe with the European Central Bank, International Monetary Fund and Germany essentially writing the rules as they go along.

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