Citizens Electoral Council of Australia

Media Release Thursday, 8 March 2018

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

The great bail-in cover-up underway

Since they rushed through the APRA crisis resolution powers law on Valentines Day with just seven senators present and no formal vote, the government and financial authorities are working over time to cover up that they have just legislated what one expert has called “martial law” for the next financial crisis, under which Australians will lose their savings to prop up failing banks. The Treasurer is sending out letters to rank-and-file MPs who are coming under heat from the public over the passage of the law, denying that it is “bail-in” and that it threatens deposits. And APRA chairman Wayne Byres continued the cover-up in testimony to a Senate estimates hearing on 1 March.

Byres’ testimony was full of half-truths and outright deceptions, as he sought to duck questions relating to how APRA’s lax regulation of the banks has led to their reckless lending practices and consumer abuses. He was especially misleading in his responses to Senator Pauline Hanson, who grilled him on the APRA bail-in law.

Senator Hanson opened by asking Byres about the government’s guarantee of deposits up to $250,000, the Financial Claims Scheme (FCS), which the government cites to claim that the law won’t bail in deposits. She based her question on former APRA principal researcher Dr Wilson Sy’s submission to the Senate inquiry into the law, which revealed that deposits are not currently guaranteed under the FCS, because the FCS is not currently activated. Dr Sy noted that in deciding whether to activate the FCS, the government would have to weigh up the objective of depositor protection against the objective of financial stability, and if they are in conflict, APRA would prioritise financial stability.

Senator Hanson asked, “The question that many voters are very worried about, and I am anxious to have verified by APRA, is: are bank deposits currently protected by the FCS—that is, is the Financial Claims Scheme currently activated?” In response, Byres conceded, “Well, it’s not currently activated in the sense that it’s only activated when a bank fails.” He then claimed that the FCS guarantee is real for deposits up to $250,000. However, what Byers didn’t say is that the APRA law gives the regulator bail-in powers to intervene in banks before they fail, to be used well before the FCS can be activated.

At this point, the chair, Liberal Senator Jane Hume, a former Deutsche Bank, NAB, and Rothschild banker, jumped in to interrupt Senator Hanson, to claim the issue was already settled: “As a follow-up—sorry, Senator Hanson—you’re absolutely right. There was considerable concern from a particular group called the Citizens Electoral Council, who actually are a political party. But I understand APRA submitted to that particular legislation inquiry and testified to that extent, and so did the RBA and so did ASIC, and they said that those powers are not at all a threat to depositors’ funds.” Although Senator Hume was forced to acknowledge the CEC, due to the thousands of submissions her committee had received as a result of the CEC’s mobilisation, it is telling that she did not say that the concerns also came from Dr Wilson Sy, the former APRA principal researcher, even though she had met with Dr Sy to discuss his concerns. Mentioning Dr Sy would have been inconvenient for the APRA boss, who would have had a harder time explaining the objections of a former member of his own organisation.

Byres then reassured Senator Hanson that APRA’s “core purpose, set out in the Banking Act, is to protect depositors”. This was a blatant half-truth, which omitted the key point made by Dr Sy that the Banking Act defines APRA’s core purpose as the protection of depositors and the promotion of financial system stability. As Dr Sy had noted in his submission, these can be conflicting objectives.

Senator Hanson then asked: “I’ve had a lot of concerns from people getting in touch with my office, and they’re actually really concerned, that the crisis resolution powers and other measures act empowers APRA to make determinations in secrecy to access private depositors’ accounts in a time of financial crisis to meet monetary demands. Would APRA state categorically the act does not grant APRA that power?”

At first Byres pretended he didn’t know which act Senator Hanson was talking about, even though she had named the act in her question. He then tried to duck the question, by referring back to the FCS guarantee, so Senator Hanson pressed him repeatedly for a direct answer, finally insisting, “My question was: in a crisis in this country can you enact to actually take the money out of depositors’ accounts, as happened in Crete [she meant Cyprus] and Greece?”

Byres finally spat out: “No. We do not have the power to bail in—as is the sort of the common-language term—depositors’ money.” This is untrue, because the law explicitly empowers APRA to “convert” into worthless shares, or “write off”, a bank’s so-called hybrid securities if it gets in trouble. This is the very definition of bail-in. But after this section of the law stipulates that conversion or write-off applies to hybrid securities, it adds “or any other instrument”, which is language so broad that it doesn’t exclude deposits, creating the danger that APRA could find a way to grab them in a future crisis. The government can offer as many reassurances as it likes, but they mean nothing unless they are enshrined in the legislation, which they aren’t. And, as Senator Hanson well knows, the government ensured deposits wouldn’t be explicitly excluded in the law, by rushing it through the Senate while One Nation Senators weren’t in the chamber, knowing One Nation intended to move a simple amendment stating that “any other instrument” cannot include deposits.

Before Hanson could follow up his answer, however, the chair intervened to shut her questioning down. “Senator Hanson, I think that question has been asked and answered numerous times,” Senator Hume said. “We might move on.”

The government and APRA worked in tandem in this hearing to continue their cover-up of a national scandal. As Dr Wilson Sy expressed, they have rammed through the equivalent of a financial martial law. In a full-blown banking crisis brought on by the crash of the housing bubble, the $43 billion of hybrid securities that banks have sold to absorb their losses won’t be enough. The banks will have hundreds of billions in bad debts and trillions in unpayable derivatives obligations that would threaten to trigger a global chain-reaction collapse. In these circumstances APRA and its superiors at the Bank for International Settlements and Financial Stability Board, who cooked up bail-in, will be desperate to grab whatever they can to plug holes, which is why everywhere in the world that bail-in is law it applies to deposits.

It is up to the Australian people to make sure that the government cannot “move on”. Join the CEC’s fight to expose this scandal, and to implement the Glass-Steagall banking regulation that separates banks with deposits from all other financial businesses, to fully protect all deposits from the risks of financial speculation.

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

Click here to join the CEC as a member.

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