How safe are banks?

[Tyler Durden]

I was talking to a friend tonight who told me that ING nearly went under during the GFC. I have a bit of money with them, and I had no idea they were in trouble (although admittedly, I wasn't too interested in finance back then).

So it made me think: how safe are banks when it comes to safe keeping our money? I seriously don't know anyone who would be likely to keep a tin box of cash under their bank. Everyone seems to keep it in an account of some sort - so if banks go down, then do we really lose all our money?

 

[robusta]

Well IMO I would have to say they are as safe as banks.:

 

[Tyler Durden]

Errata - I meant keeping it under their 'bed', not bank

 

[addison]

if the funds you have in your bank are guaranteed by the government, then i guess they are only as safe as your belief that the government would never steer us towards a national debt default, do we really know how safe the reserve bank is, for instance ??? any type of investment requires some level of trust, or belief, that in the event it all goes belly up, that you can either get out in time, or get bailed out

 

[ROE]

As safe As Aussie Government

http://www.guaranteescheme.gov.au/qa/wholesale-funding.html

 

[tollbridge]

How is this for a scenario:

I'm 21 years old and have $10,000.00 in my superannuation account. Not a lot - but with a minimum of 9% of my income added each year plus extra contributions I'd expect a rather large sum which I am not able to touch until the year 2056. It's under the complete control of the ATO.

We're talking 50+ years away. What government policies could be implemented, denounced and changed in the next 50 years? Anything could happen realistically. The term "superannuation" may not even exist!

I'm of the belief (and hope) that Australia has some of the best and safest banks in the world and our resources will strengthen our economy well over the next 100 years. All it'd take though is a few years of bad fiscal policy and it could potentially all be over. If Australia ever was to ever approach default I have a feeling one of the first attempts at saving the economy would be to pool all superannuation and introduce an old-age pension. This will never happen - though it is 50 years away...

 

[Glen48]

The higher Gold and other precious metals go the less safe banks are, OZ banks are joined at the hip with global banks.

 

[Tyler Durden]

Ok, and if we deem banks to be unsafe, then where do we put our money? Do we really hide it under our bed?

 

[springhill]

Ok, and if we deem banks to be unsafe, then where do we put our money? Do we really hide it under our bed?

Careful Tyler, gotta watch those Reds under the bed mate, haven't you heard they are ready to rally under Gillard?

 

[Starcraftmazter]

I too wonder; let's say there is a major collapse of the housing market in Australia, to what extent can our government which has historically only had very little amounts of debt (and still does) compared to USA for instance, spend hundreds of billions of dollars in one action to bail out our banks?

Or let's say this; there is a major economic collapse of the monetary system of the world, then a new currency (or currencies) come in, and everyone who has bought up gold now wants to redeem it for the new currency - who's then going to buy the gold? It may lose a lot of purchasing power.


Hmmm.....

 

[Tyler Durden]

I forgot to add - when I pointed out to my friend that Ubank was backed by NAB, he asked rhetorically "if it's so safe, then why doesn't NAB just do it?" (ie. why doesn't NAB offer 6.51%?)

Anyone think this is a valid point?

 

[VSntchr]

I forgot to add - when I pointed out to my friend that Ubank was backed by NAB, he asked rhetorically "if it's so safe, then why doesn't NAB just do it?" (ie. why doesn't NAB offer 6.51%?)

Anyone think this is a valid point?

Could it be to do with marketing?

i.e. NAB spins off Ubank to get all the internet savvy youngters like yourself who are looking for the best rate online...while not comprimising the earning power of their dinosaur customers who are unwilling to change banks/accounts and therefore they can maintain a bigger margin on the bulk of their customers...?

 

[Starcraftmazter]

Just to come back to this (because I am also with ING);

I was talking to a friend tonight who told me that ING nearly went under during the GFC. I have a bit of money with them, and I had no idea they were in trouble (although admittedly, I wasn't too interested in finance back then).

Today, the only thing that I found (admittedly without a great deal of research) is this on wikipedia:

In October 2008, ING Direct suffered a $749 million outflow of deposit funds. There had been some confusion as to whether or not the Australian Government's guarantee over funds on deposit applied to deposits up to $1 million with ING DIRECT Australia. Once it was confirmed that the Guarantee did apply to ING DIRECT Australia, outflows that had been solely attributed to this situation slowed and deposits returned.

Unfortunately it was not sourced either. To me, what this says is that, ING Direct survived what amounts to something of a bank run, without any major issues? (ie. it did not close down, was sold off, etc), while enabling all of it's customers to withdraw their holdings without issue (or at least those customers which choose to do so).

This to me would say that it is in a very good, very strong position. However certainly I can imagine this placed great strain on them, so I'm wondering if you know of any other specifics (or maybe your friend?), and what specific trouble did they face and how close did they come to suffering it?

I do know that ING Direct is backed by ING Group, which is one of the biggest, most responsible and profitable banks in the world; however in any major economic problem, I would not trust my money with any bank, or even in fiat form.

Overall I suspect that international banks originating in strong European countries may be safer than our own banks (and US banks) in the event of any crash here at home, but ultimately it depends on government guarantees I suppose.


Either way, if anyone has more information on ING and how they fared the GFC, please do let us know in this thread.

 

[basilio]

It's all pretty moot isn't it ? If we are actually concerned about failure of Australian Trading and Savings banks what would happen before hand and concurrently would be (I think) overwhelmingly more traumatic. Some obvious possibilities.

1) Almost certain collapse of the stock market. The banks are major elements of the market in volume. Also failure of the banks would choke financial movement in and out of the market. (How are you going to trade )

2) Collapse of most investment funds, super funds which hold substantial value in shares and cash on hand (I'm suggesting that the cash on hand in the banks would be at risk here.)

3) Immediate seizure of almost all economic activity in the conventional marketplace as wage payments, payment of accounts ect can't happen.

4) "Serious concern " (mass rioting and looting ??) as 2 million pensioners who live from pension day to pension day don't get their fortnightly payment and react accordingly.

But this is just hypothetical of course because given that such a scenario has been flagged previously and the consequences are so clearly obvious the Treasury has a Plan B in the bottom drawer to keep up confidence in the operation of our banking system in case of these eventualities.....

Of course it does , doesn't it ?

 

[Tyler Durden]

Could it be to do with marketing?

i.e. NAB spins off Ubank to get all the internet savvy youngters like yourself who are looking for the best rate online...while not comprimising the earning power of their dinosaur customers who are unwilling to change banks/accounts and therefore they can maintain a bigger margin on the bulk of their customers...?

It's possible, but the costs of creating a spinoff wouldn't be too minimal I'd think. Also, who's to say that if they created the same account/features with their current dinosaurs, that not many of them would make the switch? If CBA (my current day to day account) offered me 6.51% provided I deposited $200 a month, I'd do it in a flash. Unfortunately, all they have currently is waiving account fees if you deposit $5000 per month (could be wrong about amount, but it's something like that).

Just to come back to this (because I am also with ING);



Today, the only thing that I found (admittedly without a great deal of research) is this on wikipedia:



Unfortunately it was not sourced either. To me, what this says is that, ING Direct survived what amounts to something of a bank run, without any major issues? (ie. it did not close down, was sold off, etc), while enabling all of it's customers to withdraw their holdings without issue (or at least those customers which choose to do so).

This to me would say that it is in a very good, very strong position. However certainly I can imagine this placed great strain on them, so I'm wondering if you know of any other specifics (or maybe your friend?), and what specific trouble did they face and how close did they come to suffering it?

I do know that ING Direct is backed by ING Group, which is one of the biggest, most responsible and profitable banks in the world; however in any major economic problem, I would not trust my money with any bank, or even in fiat form.

Overall I suspect that international banks originating in strong European countries may be safer than our own banks (and US banks) in the event of any crash here at home, but ultimately it depends on government guarantees I suppose.


Either way, if anyone has more information on ING and how they fared the GFC, please do let us know in this thread.

Hey thanks for that, I couldn't find that when I did a google search. My friend didn't elaborate, perhaps I'll ask him next time I see him.

It's interesting to see that $749m went out during the that time - I would've thought that any account like ING would be the safest place to put your money. I wonder where everyone put their money? Into gold?

 

[Starcraftmazter]

It doesn't seem like any sane government would sit by and do nothing. The question is, if banks lose a lot of money (lets say housing crash again), how exactly is the government going to deal with this sort of debt?

Let's for the sake of theory-crafting say this is combined with a commodity bust and a China bust. How can the immense debt that has accumulated as a result of the housing market ever be re-payed by any combination of the public and private sector in Australia? Especially considering all the other problems we'd be facing as a result (very high unemployment to say the least).

It's interesting to see that $749m went out during the that time - I would've thought that any account like ING would be the safest place to put your money. I wonder where everyone put their money? Into gold?

Do you mean once they withdrew it? That's a good question, I guess under the bed? I think people thought that because it's not one of the big 4 and/or because it's foreign owned, that the government wouldn't bail them out if need be.

 

[Tyler Durden]

It doesn't seem like any sane government would sit by and do nothing. The question is, if banks lose a lot of money (lets say housing crash again), how exactly is the government going to deal with this sort of debt?

Let's for the sake of theory-crafting say this is combined with a commodity bust and a China bust. How can the immense debt that has accumulated as a result of the housing market ever be re-payed by any combination of the public and private sector in Australia? Especially considering all the other problems we'd be facing as a result (very high unemployment to say the least).

Doesn't every other country just solve these kinda problems by printing more money? :

On a serious note, I wouldn't know. I'll be waiting for some more senior and knowledgeable members here to proffer their minds.

Do you mean once they withdrew it? That's a good question, I guess under the bed? I think people thought that because it's not one of the big 4 and/or because it's foreign owned, that the government wouldn't bail them out if need be.

Yeah, I mean, that's a lot of cash doing really, presumably, nothing. I feel like I've been hiding my secret stash of meat in a crocodile's mouth now.

 

[Starcraftmazter]

Doesn't every other country just solve these kinda problems by printing more money? :

Printing more money is the same as taxing people more because it leads to a fundamental devaluation of the currency being printed in circulation (in the USA this is masked, because the way they measure and calculate inflation is nothing short of purposefully and directly lying to people). In the end, once you have a debt, there is no real way to deal with it, unless you simply refuse to pay it.

I actually do not understand how national level bankruptcy works, so maybe this is an option. Waiting for someone to explain this.

 

[G-Zilla]

Or let's say this; there is a major economic collapse of the monetary system of the world, then a new currency (or currencies) come in, and everyone who has bought up gold now wants to redeem it for the new currency - who's then going to buy the gold? It may lose a lot of purchasing power.

Thats the point though - another way of looking at it is your better off holding gold or a gold backed currency than the failed fiat currency that is now worthless.

 

[Starcraftmazter]

Thats the point though - another way of looking at it is your better off holding gold or a gold backed currency than the failed fiat currency that is now worthless.

I don't disagree, but I am a bit concerned that the price of gold has spun out of control a bit.

One theory I have is that the price of gold is a simple equation of the number of humans on the planet (as a de-facto world currency) divided by the amount of gold there exists, but this may be a little too naive.

Do you think gold at the moment is overvalued? If there is a collapse of fiat currency, do you think gold will lose any significant purchasing power?