From:
Sent:
To:
Toby Fiennes
Monday, 30 August 2010 8:23 a.m.
Andrew Hemphill; Douglas Widdowson; Richard Wallace
Subject:
SCF
As discussed, information on the 1oca1 / natíonal `systemíc' impact of SCF faílure please.
Here's what was saíd ín Tsy's memo to MoF last week (para 2 was ours):
1. In relatíon to direct assistance from government to firms, duríng the crisis we previously proposed that any
government direct assistance should focus on maíntainíng economically critical operations, not protecting
corporate form or shareholder value. We recommended assistance only be considered in Iine with the
following prínciples:
I. There would be substantial disruption to the economy or society if the firm's critícal operations ceased
abruptly;
A ND/OR
11. The firm considered has major backwards and forwards Iinkages (other firms rely on this firm as a
major purchaser or supplier of goods and/or services) and if service delivery failed there would be
substantial irreversible impacts;
For both I and 11, 111 must be met:
111. Established commercial Iaw remedies for dealing with corporate failures would not be sufficient to
prevent the disruption of operations.
2. Our view is that the failure of SCF would not meet these tests. The RBNZ view ís that SCF is not
systemically important to the New Zealand economy or financial system. The only possible repercussíon
would be the impact of a SCF failure on other parts of the financial system, specifically on depositor
confidence in other NBDTs. The RBNZ does not, though, judge that the impact (of such further Ioss of
confidence) on the wider system would be material. The impact of failure on the Ioca1 economy would also
not be Iarge: for example, rural exposures are quíte sma11 and a receiver would have the íncentive not to
take precipitate action.
1