Bank deposit garauntee

[Melbpom]

In light of the current turmoil on the stock market, are there any garauntees on bank deposits?

During the GFC I think is was $250k but I'm not sure if this is still in place.

[SusieRoo]

5 hours ago, Melbpom said:

In light of the current turmoil on the stock market, are there any garauntees on bank deposits?

During the GFC I think is was $250k but I'm not sure if this is still in place.

The government guarantees most Australian bank deposits up to $250k. And it’s per person per bank, so you can have $500k in a joint account in one bank and multiples accounts across several banks. So if the bank collapses you get paid out by the state.

Only problem, there is currently a loophole that allows banks to ‘bail in’ your deposits to save the bank from going bust, as happened in Cyprus. The banks can just stop you accessing you account and help themselves to your money, while they try to fix the bank.

There is however a new bill currently in progress ‘Banking Amendment (Deposits) Bill 2020’ which will close this loophole if it passes. I just hope it passes in time for what’s about to happen.

[Marisawright]

3 hours ago, SusieRoo said:

The government guarantees most Australian bank deposits up to $250k. And it’s per person per bank, so you can have $500k in a joint account in one bank and multiples accounts across several banks. So if the bank collapses you get paid out by the state.

Only problem, there is currently a loophole that allows banks to ‘bail in’ your deposits to save the bank from going bust, as happened in Cyprus. The banks can just stop you accessing you account and help themselves to your money, while they try to fix the bank.

I wasn't aware of that.  I can understand that they're allowed to block access to your account if there's a run on the bank, but I didn't think that then allowed them to take your money.  

[rammygirl]

Well they use your money anyway, that is why you get interest.  Any money you have on deposit they can borrow in this way but you can have it back when you want it. It is how they work. 

[SusieRoo]

13 hours ago, rammygirl said:

Well they use your money anyway, that is why you get interest.  Any money you have on deposit they can borrow in this way but you can have it back when you want it. It is how they work. 

That’s what the banks like us all to believe with their happy adverts full of singing employees. But the reality is very different when there’s a crisis (and there is going to be a big crisis this year).

When you deposit money in a bank, you are essentially lending your money to the bank. You’re giving the bank a loan and you become an unsecured creditor. Your money is now the banks money and all you own is a contract. Then if the bank is in trouble, they can turn around and say “sorry we can’t pay back the loan”

If you read the ‘terms and conditions’, there is always a clause that will allow the bank to change the ‘terms and conditions’ whenever they want. It’s a one-sided contract and as an unsecured creditor you have very few rights.

The deposit guarantee scheme only kicks in when (or if) the bank fails completely, which we know from the GFC, is unlikely to really happen. Banks are too big to fail. 

This is why this new ‘Banking Amendment (Deposits) Bill 2020’ is so important now to prevent banks from ‘bailing in’ your deposits.

Australian households now hold debt on average of around 190% of household income - one of the highest levels in the developed world. If the economy now falters and the bubble pops, Australian banks are going to be in trouble.

Personally, I believe this would be a good time to keep some cash at home, just in case.

[rammygirl]

The gfc proved that banks are not too big to fail! Several did. It is always prudent however to split your assets. 

[Marisawright]

I had to research this and it seems @SusieRoo has a point.  

When the bank guarantees were introduced after the GFC, the intention was that deposits would be guaranteed under any circumstances.  

Then in 2018, Australia passed a law bringing Australia into line with an international agreement about how creditors should be handled when a bank fails.   Several senators questioned the wording of the bill because it didn't specifically exclude bank depositors, but the government was adamant that bank deposits weren't included, and managed to get the bill through.

The Senate now wants to pass an amendment to make the exclusion clear.  

What I notice is that the people making the biggest noise about this are gold bullion dealers and financial advisers.  They are all writing articles telling you that your money isn't safe in the bank so you'd be better off investing it with them.  There's obviously a large dose of self-interest there!  So i wonder how real the risk is.

[Melbpom]

On 13/03/2020 at 05:20, SusieRoo said:

There is however a new bill currently in progress ‘Banking Amendment (Deposits) Bill 2020’ which will close this loophole if it passes. I just hope it passes in time for what’s about to happen.

How likely that this bill will pass given that it's sponsor is from Pauline Hanson's One Nation?

[SusieRoo]

The extreme volatility in the finical markets is putting more strain on the banks. USA interest rate down to 0% last night and the RBA is printing money to support Australian banks (they would possible fail now without this liquidity). This is completely uncharted territory and it is so important to structure savings and finances now (don’t keep all of your eggs in one basket). Be prepared for a rough road ahead and keep some cash at home.

[SusieRoo]

AUD now at a 17 year low against the USD.

I have recently heard (not sure if this is fake news) that the deposit guarantee scheme has a cap (or limit) per bank. So the big four banks with thousands of customers will potentially not cover the full $250k for each of their depositor’s accounts.

[Marisawright]

13 hours ago, SusieRoo said:

 

I have recently heard (not sure if this is fake news) that the deposit guarantee scheme has a cap (or limit) per bank. 

I've just done some thorough searching and I am 99.9% sure this is fake news.

[SusieRoo]

NAB has asked the stock market to suspended trading of their shares. I think this is unprecedented for one of the big four Australian banks, although there is apparently nothing for depositors to worry about.

Reminds me of Mr Birling saying “Titanic sets sail today...unsinkable, absolutely unsinkable ..”

[DukeNinja]

Well the AUD has lost around 28% of purchasing power relative to Gold since September. No doubt unlimited QE has and will increase this figure further.

[Ken]

On 14/03/2020 at 09:44, Marisawright said:

  . . .

What I notice is that the people making the biggest noise about this are gold bullion dealers and financial advisers.  They are all writing articles telling you that your money isn't safe in the bank so you'd be better off investing it with them.  There's obviously a large dose of self-interest there!  So i wonder how real the risk is.

Yes you can see the logic of people not wanting the uncertainty of a bank guarantee where your money might get bailed in during crisis and instead wanting the certainty of no bank guarantee where your money will definitely get bailed in during a crisis!

[SusieRoo]

ME Bank has started taking savers cash to pay down their mortgages without telling them. This same thing happened in the UK after the GFC, mainly with small business. Banks just helped themselves to cash in other accounts to pay down loans.

It would be wise not to have a current or savings account at the same bank as your home loan.

[Marisawright]

6 minutes ago, SusieRoo said:

ME Bank has started taking savers cash to pay down their mortgages without telling them. This same thing happened in the UK after the GFC, mainly with small business. Banks just helped themselves to cash in other accounts to pay down loans.

 

Can you post a link to that information?     If you're saying that they're taking money from a customer's savings account to pay the customer's mortgage payment if they're in arrears, I don't see the problem. It's probably written into the mortgage agreement.

[NickyNook]

My understanding is that ME bank have modified the amount of funds customers can redraw from their mortgages.   According to the SMH they said -

"No money has been removed from customer accounts. The adjustment made is to the amount available for redraw."

 

[Marisawright]

2 hours ago, NickyNook said:

My understanding is that ME bank have modified the amount of funds customers can redraw from their mortgages.   According to the SMH they said -

"No money has been removed from customer accounts. The adjustment made is to the amount available for redraw."

 

You're right.

What happened is that ME Bank's formula for calculating redraw amounts has been wrong for years.   The result was that people could have withdrawn too much, leading them to be in arrears with their loan.   ME Bank has now corrected the formula.

The trouble is, people made extra payments on the basis of the old formula, and many were banking on withdrawing the lot in the current crisis.  

[SusieRoo]

11 hours ago, Marisawright said:

You're right.

What happened is that ME Bank's formula for calculating redraw amounts has been wrong for years.   The result was that people could have withdrawn too much, leading them to be in arrears with their loan.   ME Bank has now corrected the formula.

The trouble is, people made extra payments on the basis of the old formula, and many were banking on withdrawing the lot in the current crisis.  

It’s shockingly naïve to dismiss this as the bank correcting an innocent clerical error and even worse to suggest the customers were somehow at fault.

There is a real and imminent financial tsunami about to make landfall. These types of events are the thin end of the wedge. I guess unless you have been through this before, it’s hard to comprehend that the banks do not play by the rules in a crisis.

It’s important to understand that the banks were in trouble long before the virus. 

[Marisawright]

5 hours ago, SusieRoo said:

It’s shockingly naïve to dismiss this as the bank correcting an innocent clerical error and even worse to suggest the customers were somehow at fault.

There is a real and imminent financial tsunami about to make landfall.

I did not suggest the customers were at fault.  Why would they understand a bank formula?  As you say, the banks are under pressure now and that's what caused them to become aware of this mistake - because people were suddenly wanting to withdraw amounts larger than they expected.

I don't doubt there is going to be a financial tsunami, but when it happens, it's hard to see where else one could put one's money that would be any safer than the banks.  After the GFC (during which none of the Australian banks failed, BTW), the Australian government changed the legislation so that banks now have to keep much larger reserves of cash than they ever did before.   

[SusieRoo]

44 minutes ago, Marisawright said:

...the Australian government changed the legislation so that banks now have to keep much larger reserves of cash than they ever did before.   

There is now no capital adequacy requirement for Australian banks. It was scraped by APRA a few weeks ago, at about the same time the RBA started printing money.

[Marisawright]

1 hour ago, SusieRoo said:

There is now no capital adequacy requirement for Australian banks. It was scraped by APRA a few weeks ago, at about the same time the RBA started printing money.

That's an exaggeration. It hasn't been scrapped, just reduced to 2017 levels.

 https://www.apra.gov.au/news-and-publications/apra-adjusts-bank-capital-expectations

Edited May 4, 2020 by Marisawright

[SusieRoo]

35 minutes ago, Marisawright said:

That's an exaggeration. It hasn't been scrapped, just reduced to 2017 levels.

 https://www.apra.gov.au/news-and-publications/apra-adjusts-bank-capital-expectations

I think you may have misinterpreted the following sentence - “APRA would not be concerned if they (the banks) were not meeting the additional benchmarks announced in 2017 during the period of disruption caused by COVID-19”

[NickyNook]

3 minutes ago, SusieRoo said:

I think you may have misinterpreted the following sentence - “APRA would not be concerned if they (the banks) were not meeting the additional benchmarks announced in 2017 during the period of disruption caused by COVID-19”

I think you may be selectively quoting because what it actually said was - 

"Provided banks are able to demonstrate they can continue to meet their various minimum capital requirements, APRA would not be concerned....."

[Marisawright]

1 hour ago, SusieRoo said:

I think you may have misinterpreted the following sentence - “APRA would not be concerned if they (the banks) were not meeting the additional benchmarks announced in 2017 during the period of disruption caused by COVID-19”

Did you not notice that word "additional"?   They still have to meet the benchmarks as they were before 2017, which were already higher than a lot of banks in other countries.  It's only the extra, higher benchmarks introduced in 2017 that they're being allowed to miss.

Edited May 5, 2020 by Marisawright