New Zealand May Expand Bank Guarantees, Cullen Says

By Tracy Withers

Oct. 20 (Bloomberg) -- New Zealand officials are working on a plan to guarantee wholesale deposits at the nation's banks, Finance Minister Michael Cullen said.

``The Reserve Bank and Treasury are working on a possible wholesale deposit guarantee scheme,'' Cullen said in a debate broadcast today on Radio New Zealand. ``There is no need for an urgent decision. We have time to work through it.''

New Zealand last week put guaranteed retail deposits to bolster confidence in financial institutions. Unlike other nations such as Australia and South Korea, Cullen's plan doesn't guarantee wholesale deposits from global fund managers and local lenders say that may make it more difficult to raise funds when credit markets reopen.

South Korea yesterday said it will guarantee $100 billion of lenders' foreign-currency debt. Governments in Greece, Ireland and Switzerland also announced deposit guarantees last week as part of a coordinated European response to the global financial crisis.

Units of Australian-based banks handle about 90 percent of all New Zealand deposits, and officials are taking this ownership into account, Cullen said.

``The majority of our institutions are owned from offshore and the New Zealand government does not want to be writing a blank check for offshore shareholders,'' he said.

Yesterday, opposition National Party leader John Key said New Zealand's plan is ``out of line'' with Australia and there is a risk local institutions will switch their funds.

``The sooner we are able to resolve the current issues around the deposit guarantee scheme, the sooner we will give certainty to those involved in the banking sector,'' Key said in an e-mailed statement.

National leads the governing Labour Party in opinion polls ahead of the Nov. 8 election. Key said he will work with the government to ensure decisions are made.

To contact the reporter on this story: Tracy Withers in Wellington at twithers@bloomberg.net.