Customers could recover $20,000 if Australian bank collapses

metric · 28 March 2008

why does this story make me nervous?

http://www.news.com.au/business/story/0,23636,23444519-462,00.html

BANK customers would be guaranteed to quickly recover $20,000 of their deposits if their bank collapsed under a plan before the federal Government to retain confidence in the nation's financial system.

The Reserve Bank said the nation's banking system remained robust despite the global credit squeeze caused by the collapse of the US sub-prime mortgage market last year.

But it revealed the nation's peak financial regulators, led by the Reserve Bank, had recommended the commonwealth introduce a scheme to guarantee to quickly repay the first $20,000 of customer's deposits with a bank, building society or credit union if the institution collapsed.

The scheme would involve the commonwealth repaying the failed institution's customers with funds it has on deposit at the Reserve Bank, and then recovering the money by selling the institution's assets.

The move, first considered by the Wallis inquiry into the banking system in 1997 and revived after the 2001 collapse of insurance giant HIH left many policyholders out of pocket, would help protect Australians from losing money in the event of a bank collapse such as the recent failure of Northern Rock in Britain or Bear Stearns in the US.

Aussiejeff · 28 March 2008

metric said:
why does this story make me nervous?

http://www.news.com.au/business/story/0,23636,23444519-462,00.html

BANK customers would be guaranteed to quickly recover $20,000 of their deposits if their bank collapsed under a plan before the federal Government to retain confidence in the nation's financial system.

The Reserve Bank said the nation's banking system remained robust despite the global credit squeeze caused by the collapse of the US sub-prime mortgage market last year.

But it revealed the nation's peak financial regulators, led by the Reserve Bank, had recommended the commonwealth introduce a scheme to guarantee to quickly repay the first $20,000 of customer's deposits with a bank, building society or credit union if the institution collapsed.

The scheme would involve the commonwealth repaying the failed institution's customers with funds it has on deposit at the Reserve Bank, and *then recovering the money by selling the institution's assets*.

The move, first considered by the Wallis inquiry into the banking system in 1997 and revived after the 2001 collapse of insurance giant HIH left many policyholders out of pocket, would help protect Australians from losing money in the event of a bank collapse such as the recent failure of Northern Rock in Britain or Bear Stearns in the US.

I'd like to comment on the bit I've highlighted. In the event of any of our majors collapsing, the chances of OUR Fed recovering THEIR deposits in any meaningful degree from the sale of any major collapsed bank(s) assets would be rather slim, wouldn't it? I mean, in the ensuing financial market PANIC induced by such a major bank collapse, would any insitution in its right mind be wanting to buy into the resulting fiasco just to help save the Fed's self-induced liquidity problem???

Fair dinkum. Someone has to "Pay the Piper" eventually.... these never-ending smart-a**plans to shovel sh*** from one side of the road to the other ad-infinitum have to fall flat sooner or later.

IMO

AJ

ROE · 28 March 2008

Is this the omen to comes to Australian Banks?
With massive mortgage debt and the income to debt ratio is at all time high

Government don't consider this sort of legislation if there is zero chance the bank collapse. My preparation work start today

gfresh · 28 March 2008

Well this pretty much confirms what was suspected in the other thread, there is no explicit protection for deposits with our banks presently

$20k isn't enough.. even if you spread them between the four major banks, that's only $80k. Many people that have recently sold up a home or shares due to the current conditions would likely be sitting on several multiples of that. When "cash is king" when everything else is failing, it's vital that is protected.

metric · 28 March 2008

one can understand why people put trust in gold and silver when banks or gov start talking like this.

Trembling Hand · 28 March 2008

The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.

xoa · 28 March 2008

It's true that something needs to protect depositors against the havoc threatened by debt junkies and real estate speculators. However, it should be done within the framework of the free market. Depositors already get first claim in the event of a bank collapse.. in Australia, this includes the assets of the bank's derelict debtors.

Kauri · 28 March 2008

Trembling Hand said:
The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.

but who has provided/bought that insurance...
Cheers
.........Kauri

cuttlefish · 28 March 2008

Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.

Just confirms that cash may not be king this time around - unless you've got it in notes stuffed in a mattress somewhere.

brty · 28 March 2008

TH,

What makes you think that if the brown stuff hits the fan, the insurance company will be able to honour their obligations to pay out your $mil??

bye

brty

Kauri · 28 March 2008

cuttlefish said:
Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.

Just confirms that cash may not be king this time around - unless you've got it in notes stuffed in a mattress somewhere.

even that has its hazards... my nearest and dearest decided that the old bed had had a hard life and decided to surprise me by buying a new one... the old one has been given to the Sally Annes...

Cheers
.........kauri

noirua · 28 March 2008

The U.K. have recently raised their guarantee on a U.K. Bank failure to $75,000 per customer. The guarantee on the Northern Rock Bank is unlimited.
Any guarantee, as the title says, would only cover an Australian Bank and not a Foreign Bank, which would only be covered by its domain legislation on deposits.

Trembling Hand · 28 March 2008

brty said:
What makes you think that if the brown stuff hits the fan, the insurance company will be able to honour their obligations to pay out your $mil??

Kauri said:
but who has provided/bought that insurance...
Cheers
.........Kauri

cuttlefish said:
Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.

yes yes yes.

:iagree::iagree::iagree:

That's why I take all my profit each week and spend it on expensive women and booze.

cuttlefish · 28 March 2008

Kauri said:
... my nearest and dearest decided that the old bed had had a hard life and decided to surprise me by buying a new one... the old one has been given to the Sally Annes...

hahah I could just picture it too.

Trembling Hand said:
That's why I take all my profit each week and spend it on expensive women and booze.

lol thats the way!

Aussiejeff · 28 March 2008

noirua said:
The U.K. have recently raised their guarantee on a U.K. Bank failure to $75,000 per customer. The guarantee on the Northern Rock Bank is unlimited.
Any guarantee, as the title says, would only cover an Australian Bank and not a Foreign Bank, which would only be covered by its domain legislation on deposits.

So, who underwrites the guarantor (U.K.) guaranteeing the "unlimited" guarantee to Northern Rock?

Where does "the buck" stop?

IFocus · 28 March 2008

Trembling Hand said:
yes yes yes.

:iagree::iagree::iagree:

That's why I take all my profit each week and spend it on expensive women and booze.

Now thats a real investment........

Julia · 28 March 2008

Isn't the suggestion of the $20,000 per depositor just a sort of emergency payment to tide the customer over until it can all be sorted out/bailed out?

Here is another article on it:

http://www.sharecafe.com.au/article_air.asp?a=AV&ai=7934

Aussiejeff · 29 March 2008

Julia said:
Isn't the suggestion of the $20,000 per depositor just a sort of emergency payment to tide the customer over until it can all be sorted out/bailed out?

Here is another article on it:

http://www.sharecafe.com.au/article_air.asp?a=AV&ai=7934

Hi Julia.

Ta for the link... Here's a couple of points I took from it...

"Under the existing legislation, depositors rank ahead of other creditors in a failed ADI, although they are likely to have to wait some time before they could be repaid."

Obviously, an unspecified amount of time for an unspecified amount of repay (potentially years for zilch?)

"Given this, the Council is working on an Early Access Facility, which would provide early repayment of up to $20 000 per depositor in a failed institution; it is estimated that this cap is sufficient to cover the entire deposits of around 80 per cent of depositors."

Hmmm. Now that reads to me that $20,000 is not even guaranteed to someone who might have, say, $500,000 deposited. Only "up to" $20,000?

"For low-doc loans, the 90-day arrears rate was 0.70% in November 2007 more than double that for prime full-doc loans, but broadly around the level of a year ago. In contrast, the arrears rate on nonconforming loans – which are made to borrowers with poor credit histories – has risen significantly over the past few years to stand at 7.25%. These loans, however, account for less than 1% of outstanding housing loans in Australia".

All the data and graphs shown in the article only include up to Dec 2007. I would bet the data for arrears and defaults is far worse now (as at end of March 2008) than what the article has presented.

AJ

Prospector · 29 March 2008

Trembling Hand said:
The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.

Where do you think Insurance companies will get the money from though?

vishalt · 29 March 2008

By deposits do they mean savings?

If so I better spread my savings across the banks then, jeez way to stoke up the paranoia.

Now I can understand the whole "F**k America" cliche`, its true when you understand I guess.

Thanks for the fear mongering, now everyone in this country in the back of their mind has the thought of their bank collapsing and savings in trouble just because the US sub-prime collapses.

God I will NEVER visit the US.

Customers could recover $20,000 if Australian bank collapses

metric

Aussiejeff

ROE

gfresh

metric

Trembling Hand

Can be found on the bid

xoa

Kauri

E/W Learner

cuttlefish

brty

Kauri

E/W Learner

noirua

Trembling Hand

Can be found on the bid

cuttlefish

Aussiejeff

IFocus

You are arguing with a Galah

Julia

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Prospector

Not a scaredy cat anymore

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Customers could recover $20,000 if Australian bank collapses

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