• What we do
  • Who we are
  • Media & insights
  • Contact

New Zealand’s Depositor Compensation Scheme (DCS) takes effect

Written by

Related Tags

Get in touch

Please contact us via email or the form below to discuss business queries.

reception@waterstone.co.nz

On 1 July 2025, the DCS became effective in New Zealand, providing coverage of up to $100,000 per depositor, per licensed deposit taker (including banks, finance companies, and credit unions) in the case of a financial institution’s failure. The list of the licensed deposit takers can be found on the Reserve Bank of New Zealand’s website.

The government-backed scheme provides protection for eligible deposits held in DCS-protected accounts, with most common deposit accounts covered automatically. The Reserve Bank of New Zealand (RBNZ) administers the scheme, which is funded by levies on deposit takers and aims to align New Zealand with international best practices for deposit protection.

Why the scheme matters

While failures of financial institutions are relatively uncommon in New Zealand, they typically occur when an institution becomes insolvent and unable to meet its obligations to depositors and other creditors. Such failures, whether involving banks or non-bank entities, can result from a range of factors including mismanagement, adverse economic conditions, or even criminal activity.

Importantly, such failures tend to unfold rapidly and can result in significant losses. The run on Silicon Valley Bank (SVB) in the United States illustrates this risk, with US$42 billion withdrawn in just a single day.

By introducing a credible deposit scheme, policymakers aim to strengthen confidence in the financial system and reduce the likelihood of systemic risk. However, coverage is capped ($100,000). It is also worth noting that the scheme does not cover foreign currency accounts or investments such as KiwiSaver, shares, or bonds.

Key advantage of the DCS

A key advantage of the DCS is the speed at which depositors can regain access to their funds compared with a standard liquidation.

According to the Depositor Compensation Scheme Implementation (DCSI), most compensation payments should be processed within 6 weeks, though more complex cases may take longer. This contrasts with the traditional liquidation process where depositors might wait 6 to 12 months to recover only part of their funds.

To achieve this, the DCS will rely on insolvency practitioners to provide essential information about depositors in the failed institution and to coordinate communication with them.

The scheme appears largely as a safeguard for depositors. However, its real impact can only be measured in the event of an actual insolvency case, a scenario that policymakers and market participants alike hope remains distant.

See all insights