Ummmm – two warning alarms just went off

Two warning alarms just went off.

The first is that the Government are moving to guarantee bank deposits in the case of an economic meltdown…

New Zealand tipped to follow OECD and guarantee bank deposits
New Zealand is being tipped to join the rest of the OECD in having a government-backed bank deposit guarantee scheme.

Kiwi households have around $170 billion on deposit with banks, and currently, should a bank fail in New Zealand, there’s no guarantee the Government would bail it out.

Under the Reserve Bank’s Open Bank Resolution scheme (OBR), depositors at a failing bank might have to take a “haircut” with some of their money being taken to recapitalise their bank, and get it open for business again quickly.

…if a bank fails and people lose the money their have deposited in the bank, the political backlash would be tsunami like. This would only be getting serious consideration if there was risk of it occurring.

The second alarm is this astoundingly critical review of the existing strength of the NZ Banks…

NZ banks slammed for not policing their staff’s behaviour
There are “significant weaknesses” in the way New Zealand banks govern and manage conduct risks and changes need to be made.

That’s the view of regulators the Financial Markets Authority and the Reserve Bank of New Zealand after undertaking a four-month review of conduct and culture at 11 banks which operate In New Zealand.

…this is serious criticism of the risk management profiles of NZ Banks and it pulls no punches…

Rob Everett, chief executive of the FMA said the governance of conduct risk – how boards oversee and monitor conduct issues in the banks required “serious attention”.

“Boards and senior management must address the recommendations and findings
from our review with urgency.”

Those recommendations include; greater board ownership and accountability, prioritising the identification of issues and addressing them quickly, strengthening staff reporting channels including whistleblower processes and removing all incentives linked to sales measures as well as revising sales incentive structure for frontline sales people and through all layers of management.

…the most concerning part are Adrian Orr’s comments…

Reserve Bank governor Adrian Orr said banks had a responsibility ensure customers receive products and services they understand.

“These products and services must be suited to customers’ needs on an ongoing basis.

“Failure in this responsibility exposes customers, banks, and the wider economy to unnecessary risk – as dramatically demonstrated by the recent Global Financial Crisis.”

…this sounds like the concern is that punters have been sold the same exotic financial products that cause the 2007-8 meltdown.

With so much happening overseas and the likelihood of a major market correction looming, the Wellington Mandarins and top bureaucrats know the vast majority of sleepy hobbits have no concept of what might hit and are busy re-arranging the deck chairs on the Titanic so that when the panic kicks in they can point to the very little they did as justification for the salaries.