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New Zealand's Wholesale Funding Guarantee (NZ GFC)

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Abstract

In 2008, the United States subprime mortgage crisis sparked international financial turmoil, with effects becoming particularly severe after the collapse of Lehman Brothers on September 15. Due to their banks' dependence on foreign funding, New Zealand's money market experienced significant friction spilling over from the United States and Europe. Liquidity premiums rose, and interbank lending became increasingly restricted. Although the crisis was not as severe in New Zealand as it was in many other countries, the problems in the money market caused some level of financial strain. To combat the crisis, the Minister of Finance announced on November 1, 2008, that the government would offer a wholesale funding guarantee to investment-grade financial institutions with substantial borrowing and lending in New Zealand. The program was intended to facilitate access to international financial markets for New Zealand financial institutions in a time of risk aversion for international investors. The program was administered as an opt-in system, with eligible banks applying for a guarantee for each security for which they desired the government backing. Participants were charged a fee for the guarantee, with the amount determined by the riskiness of the issuer, the currency of issuance, and the maturity of the loan. A total of five institutions made 24 guaranteed issuances worth $10.3 billion NZD before the issuance window closed on April 30, 2010. There were no defaults, and $290 million NZD was collected from the program.

Suggested Citation

  • Fang, Everest, 2020. "New Zealand's Wholesale Funding Guarantee (NZ GFC)," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 2(3), pages 826-839, April.
    • Handle: RePEc:ysm:ypfsfc:234343
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    File URL: https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=1110&context=journal-of-financial-crises
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    References listed on IDEAS

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    1. Alan Bollard & Tim Ng, 2009. "Coping with global financial and economic stresses," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 72, pages 34-45, March.
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    More about this item

    Keywords

    Wholesale funding guarantee; credit guarantee; New Zealand;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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