Originally Posted by
Roger
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This is a big worry and its not widely understood even by paid professionals. My understanding is shareholders funds get collared first, then unsecured bonds then if necessary secured debt and deposits can either be collared, (ring-fenced so you can't withdraw it) or expunged in extreme cases if the RBNZ considers it necessary for the financial stability of the bank or banking system. I think the real issue becomes if the OBR is exercised in respect of one financial institution the resulting run on other banks could mean the intention of the process is overridden by the execution thereof and the resulting run on other banks merely exacerbates the instability in the financial system itself. Counter productive anyone ? Just let the weak bank fail would appear to be a better option.
Shares by their very nature will always have more risk than cash but I see little point in taking an equity risk, (in effect that's what the OBR implies) and getting a call account interest rate.
IMO Digging a hole in the back yard and burying cash would give a better risk adjusted rate than a call account if the "custard really hits the fan" in the world's banking system. Ignoring rampant building costs, (fuelled by the oligopolistic pricing power of the major N.Z. suppliers and insatiable rates increases by bloated local Govt) we already have deflation in N.Z. so digging a hole in the ground and burying your cash would actually get you a return on your money risk free, (provided your neighbour or someone else wasn't watching where you hid it LOL).