This means that if a bank fails depositors have no protection and the Reserve Bank could give savers 'haircuts' to help recapitalise a failing bank. That means savers deposits would be cut arbitrarily by the Reserve Bank to ensure the bank could reopen.
A temporary deposit protection scheme was established during the financial crisis to give spooked depositors confidence in the banking sector, but it lapsed in 2010.
Then-Reserve Bank Governor Alan Bollard said at the time that “in the absence of a Government guarantee, it is vital that depositors understand the risks and the potential trade-off between risk and return”.