Government Agrees on Risk-Based Levy Structure for Depositor Compensation Scheme

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Deposit Takers Act

The Government has made final policy decisions on the Depositor Compensation Scheme (DCS) Regulations including the levy structure.

Published:

The Government has made final policy decisions on the Depositor Compensation Scheme (DCS) Regulations including the levy structure. These policy decisions will form the basis for the DCS Regulations, which are expected to receive Governor-General approval in early December.

The Government has agreed that the deposit takers’ levy should be calculated using a risk-based method. Prudential capital, liquidity, profitability and asset quality indicators will be used as the basis for the method. For the period from 1 July 2025 – 30 June 2028, credit unions and building societies (CUBS) will pay a flat-based levy, meaning their levy will be set in proportion to their estimated covered deposits. When the Deposit Takers Act is fully in force in 2028, the risk-based levy would apply to all deposit takers.

The risk-based approach reflects statutory principles for the levy, i.e. the likelihood of a DCS payout if an institution fails, the impact of a levy on entity soundness, and predictability of the levy. This approach will help to reduce deposit takers taking on undue risk, while recognising the importance of individual deposit takers’ soundness to the overall stability of the financial system.

Along with the decisions on the levy method, the Government has agreed details on the scope of protected deposits and relevant arrangements, as well as the exemption of branches of overseas deposit takers from the DCS and other operational matters.

We have proactively released our advice to the Minister of Finance, and the relevant Cabinet paper and minutes. Submissions from the March 2024 consultation and the Reserve Bank’s summary of submissions have also been released.

Deposit Takers Act proactive releases

Depositor Compensation Scheme Regulations

Compensation scheme levies to be risk based
(beehive.govt.nz website)