Citizens Electoral Council of Australia

Media Release Wednesday, 25 September 2013

Craig Isherwood‚ National Secretary
PO Box 376‚ COBURG‚ VIC 3058
Phone: 1800 636 432
Email: cec@cecaust.com.au
Website: http://cec.cecaust.com.au

Is your money really safe in the banks?

Then Treasurer Wayne Swan issued a release on 11 September 2011, on the government’s guarantee of bank deposits. It began, “Today I announce a new, permanent cap to be introduced from 1 February 2012 for the Financial Claims Scheme (FCS) of $250,000 per person per institution to protect the savings held in around 99 per cent of Australian deposit accounts in full.” [Emphasis added.]

Swan lied.

He knew when he issued this release that at least 80 per cent of all Australian bank deposits are not actually covered by his Financial Claims Scheme.

The 80 per cent of deposits that are not protected by the government’s guarantee, are practically all of the deposits in the Big Four banks: ANZ, CBA, NAB and Westpac.

Essentially, the FCS provides for $20 billion to be made available to guarantee the deposits in any Australian bank that fails.

But $20 billion is nowhere near enough to cover the deposits in: ANZ, which as of 2012 had $397 billion; CBA, $401 billion; NAB, $420 billion; or Westpac, $395 billion.

Swan knew he was lying, and so did Australia’s financial regulators, who since 2009 had discussed among themselves and with Swan that the government’s promise that deposits were guaranteed couldn’t be backed up.

The minutes of the 19 June 2009 meeting of the Council of Financial Regulators, comprised of Treasury, the Reserve Bank, the Australian Securities and Investments Commission (ASIC), and the Australian Prudential Regulation Authority (APRA), recorded, “APRA noted that a pre-funded deposit insurance scheme in Australia would not be insurance in the true sense, as failure by one of the four largest institutions would be likely to exceed the scheme’s resources.”

On 21 September 2011, 10 days after Wayne Swan’s press release, the Bank for International Settlements’ Financial Stability Board (FSB) stated in its Peer Review of Australia, “The limit of AU$20 billion per ADI [bank] would not be sufficient to cover the protected deposits of any of the four major banks, even though their assets would ultimately be sold to fund any depositor reimbursements if the FCS was used in the resolution process. In any event, there could be circumstances in which these banks would be deemed too big to undergo payout and liquidation.” [Emphasis added.]

This last sentence from the FSB should make Australians’ blood run cold. It means that the FSB regards Australia’s big four banks as “too big” to allow them to be sold up so their depositors can be paid out. The FSB is the body that is directing the members of the G20, including Australia, to enact Cyprus-style “bail-in” powers, so that if banks regarded as “too-big-to-fail” get into trouble, they will be kept afloat with funds confiscated from their depositors.

Therefore, if your money is in a big four bank, it is the opposite of “guaranteed”—the FSB intends it to be part of a slush fund the bank can grab if it gets in trouble, and like the people of Cyprus, you’ll have no say over it.

So what’s the likelihood of a big four bank getting into trouble?

First, they all got into massive trouble in 2008, and warned the Rudd government that if it didn’t guarantee their foreign borrowings, they would “be insolvent sooner rather than later”. Rudd gave them the guarantees.

Second, they all have multi-trillion dollar exposure to the same toxic derivatives bets that caused the 2008 GFC; CBA’s exposure has increased so rapidly in recent years it has started hiding its true position.

Third, the Reserve Bank of Australia is in the process of building a $380 billion bail-out fund for the Australian banks, because the banks are so overstretched, they have no hope of meeting the new international standard for minimum capital reserves regarded as necessary for safe banking.

Only one solution

There is only one policy that can properly fix the Australian banking system, and truly guarantee deposits—a Glass-Steagall separation of banks that hold deposits, from risky investment banks. The Citizens Electoral Council is fighting to expose the FSB-directed plan to enact bail-in powers in Australia through legislation currently being drafted in Treasury, and to force the Australian Parliament to guarantee deposits, by enacting Glass-Steagall instead.

The solution is clear, but to achieve it, everyone must fight, by joining forces with the CEC.

Click here to endorse the CEC’s public statement demanding the government scrap the plans for bail-in legislation, and instead enact a Glass-Steagall separation of the big four banks.

Click here for a free copy of the CEC’s pamphlet, Glass-Steagall for Australia.

Click here to join the CEC as a member.

Click here to refer others to receive regular email updates from the Citizens Electoral Council of Australia.