I still think Rod Carr had this stuff right two decades ago when he'd argued against having deposit insurance at all, and instead making very clear that government would never bail out depositors.
People can argue the toss about hard caveat emptor versus some perfect deposit insurance scheme with full risk-based pricing and whether following through with minor depositor haircuts after burning through investor equity under OBR was credible.
But that makes the mistake of comparing an imperfect status quo with an assumed-to-be-perfect government policy.
Here's what the government is doing.
The Herald can reveal Cabinet has decided levies will be risk-based. So, big banks will pay less, relative to the value of insured deposits, than risker deposit takers.
But only a small portion of the risk will be priced into the levies.
The levies won’t be as risk-based as the Reserve Bank, which regulates deposit takers, recommended.
Credit unions and building societies will also be given a hand-up by being allowed to pay lower, flat levies until 2028, before moving to the risk-based model.
The Commerce Commission, which is interested in increased competition, had recommended all deposit takers initially pay flat levies (worth a certain percentage of insured deposits) until the impacts of the scheme were better understood.
I suppose I could look at it the other way.
Remember when the government set up a hasty deposit guarantee scheme in response to the GFC over worries that deposits would flee from risky places into safer places, so it set a scheme that encouraged money to fly from safe places into risky places whose high returns were suddenly government guaranteed?
One of our sharper students maxed out his 0% student loans to invest in South Canterbury Finance at, I think, 8%.
We could all take a page from his book. If you can borrow at less than the deposit rate offered at the riskiest places that Nicola Willis is going to guarantee through 2028, it's free money! Fiscal stimulus for those of us who are most meritorious, as demonstrated by our credit-worthiness.
The lowest three-year-term mortgage rate is currently 5.65%.
The highest three-year term-deposit rate that I think might be covered is currently 6.75%.
So.
Borrow $100k and you get a risk-free $1,100 on it per year.
This Is Not Financial Advice. You'd probably need to do it through a company structure so you could write the interest cost against the interest earnings. Unless you had access to zero-percent student loans.