Deposit guarantee scheme extended

The scheme has been a lifeline for the troubled finance company sector, although the scheme has meant depositors are wary of lending beyond the life of the scheme, which was to expire on October 31 next year.

Today's announcements extend that to December 31, 2011, and the government has no intention of extending beyond that, Finance Minister Bill English said at a press conference announcing the new cut-off date and higher fees for participants.

The extended guarantee scheme will also put the acid on the least creditworthy finance companies in the scheme to get credit ratings, recapitalise, or exit the industry. The revised scheme will impose a sliding scale of fees, which will rise sharply for the weakest rated entities, and targets finance companies much more heavily than banks, building societies, credit unions and the PSIS.

"Fees paid by participating institutions will be changed to reflect their risk profile," said English. "They are intended to approximately match longer term normal market pricing."