# This Bank guarantee thing.....



## Prospector (12 October 2008)

OK, The government has said it will guarantee deposits up to $20,000 and is looking at extending this to $100,000.  Now, if one has cashed out of shares and has some funds in the bank, (in our SMSF) and we have two separate accounts for that entity (eg a Cheque Account and a High Interest Account) with the same Bank, does that mean that each account would have this $100,000 limit?

Kind of damned if you do and damned if you dont - you sell some shares to protect from falling share prices, only to think of having an element of risk with the Bank.  

I had heard it related only to personal accounts; might have to move our business cash into our personal accounts too!

I think if the Government did extend to $100,000 this would actually reduce to nil the risk of any stupid panic.  Actually, probably even the $20,000 is enough.


----------



## fimmwolf (12 October 2008)

Someone posted here recently that approximately 80% of all deposits had 20K or less in them.

If that is accurate, then I would only be looking to guarantee 20K to 30K if I were in Mr. Rudd's shoes.


----------



## Prospector (12 October 2008)

fimmwolf said:


> Someone posted here recently that approximately 80% of all deposits had 20K or less in them.
> 
> If that is accurate, then I would only be looking to guarantee 20K to 30K if I were in Mr. Rudd's shoes.




People with SMSF's have much more than $20,000 in them.  As would all Superannuation Funds!


----------



## fimmwolf (12 October 2008)

Yeah, my bad.


----------



## Prospector (12 October 2008)

fimmwolf said:


> Yeah, my bad.




My 18 year old says this all the time!  So, you would be a young 'en then?:


----------



## Green08 (12 October 2008)

Prospector said:


> People with SMSF's have much more than $20,000 in them.  As would all Superannuation Funds!




Agreed Prospector. Hypothetically if you had some of your SMSF in a share portfolio and you wanted to cash in but the bank you had the account with closed how do you get your money?


----------



## Prospector (12 October 2008)

Green08 said:


> Agreed Prospector. Hypothetically if you had some of your SMSF in a share portfolio and you wanted to cash in but the bank you had the account with closed how do you get your money?




  You couldn't!


----------



## Ageo (12 October 2008)

Let me then ask you's this, if a Big bank fell over and say there was 100,000 people with $20,000 in savings that had to be paid would the government be able to fork it out? A mere $2billion you say? what happens if 1million people have lost even say $10,000? ($10billion) what happens if a collapse happens? now imagine if they increased it to 100,000 limit? then the final question lets say they can afford to pay it out, remember its bad debt their paying off plus how long do you think it will take to receive your refund from the government?

I doubt the cashman will have you on speedial to refund your money (it could take a yr or more) and when people need the money asap i think you will find alot of unrest within people. The government should never be making promises that they cant keep (or wont wanna keep) because i can assure you if they increase the amount they will be thinkning deep down (i hope our banks dont collapse).


----------



## Green08 (12 October 2008)

Prospector said:


> You couldn't!




That's what I thought.  Though it is a valid point.  With that in mind, and people being aware of this potential problem could it be partially why the market is sinking so fast?


----------



## Prospector (12 October 2008)

Ageo said:


> (i hope our banks dont collapse).




The thing that would most likely cause our Banks to fall is if people panicked and started withdrawing their money, and not because of any major business issue.  The Bank guarantee would most likely prevent that panic.


----------



## Green08 (12 October 2008)

Ageo said:


> The government should never be making promises that they cant keep (or wont wanna keep) because i can assure you if they increase the amount they will be thinkning deep down (i hope our banks dont collapse).




They leave out the detail.  Could be 'Sure you're covered but you get repaid on a monthly  basis when we can recover the money.'  Transparancy, make sure they can deliver before such statements are made and people take them literally.  They are not instilling confidence.


----------



## MrBurns (12 October 2008)

Just to add to the problem, even if you do keep your cash safe will it be worth anything ? The hyper inflation that all the throwing of billions around like so much small change will create will mean your paper money will be worth bugger all. 

Go to gold ???????????????


----------



## Green08 (12 October 2008)

MrBurns said:


> Go to gold ???????????????




I think TimTams would work people always love chocolate! Can't eat Gold.


----------



## Ageo (12 October 2008)

Green08 said:


> I think TimTams would work people always love chocolate! Can't eat Gold.




Actually you can http://www.straightdope.com/columns/read/1979/is-eating-gold-and-silver-food-garnishes-bad-for-you


----------



## Green08 (12 October 2008)

Ageo said:


> Actually you can http://www.straightdope.com/columns/read/1979/is-eating-gold-and-silver-food-garnishes-bad-for-you




Ah yes the Garnish!  Drop at $25,000 for the sundae




But a whole bar! Well people have been known to eat entire bikes


----------



## Green08 (12 October 2008)

"The new legislation seeks to introduce a Financial Claims Scheme, which would refund up to $20,000 per person for deposits in savings or cheque accounts in banks, credit unions and building societies. The Government says the $20,000 figure would cover 80 per cent of all bank accounts. 

The new laws would also cover refunds for insurance policy if a giant insurer collapsed, as in the 2001 case of HIH where policy holders were embroiled in a complicated and drawn out attempt to get their money back. 

When financial institutions or insurance companies collapse, the largest debts and accounts are settled first – meaning small policy or deposit holders are last in line. 

Superannuation or managed funds will not be covered by the scheme, and deposits at banks not regulated by APRA will also not be insured. "

http://www.news.com.au/business/money/story/0,25479,24375006-5013952,00.html


----------



## Green08 (12 October 2008)

"Besides, if an Australian bank were to fail, depositors have first claim over recovered money, ahead of secured and unsecured creditors. That means they are almost certain to get their money back ”” although they may have to wait some time..."

http://business.theage.com.au/business/countries-upgrade-banking-guarantees-20081006-4v2p.html


----------



## MrBurns (12 October 2008)

Green08 said:


> Superannuation or managed funds will not be covered by the scheme, and deposits at banks not regulated by APRA will also not be insured. "
> 
> http://www.news.com.au/business/money/story/0,25479,24375006-5013952,00.html





Great so SMS funds in cash in the bank are not guaranteed.


----------



## fimmwolf (12 October 2008)

> My 18 year old says this all the time! So, you would be a young 'en then? :




I'm old enough to be his father, wise enough not to be :


----------



## Prospector (12 October 2008)

MrBurns said:


> Great so SMS funds in cash in the bank are not guaranteed.



   And many SMSF's would have sold out of shares and have cash in the Bank.  Cash is king etc etc.  Interesting, and rather


----------



## MrBurns (12 October 2008)

Prospector said:


> And many SMSF's would have sold out of shares and have cash in the Bank.  Cash is king etc etc.  Interesting, and rather





Exactly, once again I'm thinking gold.......


----------



## Schmuckie (12 October 2008)

I have to admit (dumb Canadian here) how surprised I was to find this thread.  Does this mean that Australia did not have a deposit insurance program?  We've had one here for many years, having been raised from $60,000 to $100,000 quite some years ago, yet Canada has what's rated the safest banking system in the world, according to the World Economic Forum.  If I remember correctly, Australia is the fourth safest banking jurisdiction.   

Europe and the U.S. also have deposit insurance programs.  After Ireland raised its limits a week ago, there was a mass exodus from other European banks to Irish banks.  Hence, a coordinated effort in Europe and elsewhere to have unified insurance limits.  International finance ministers agreed on Saturday in Washington that they would coordinate a lot of their actions.  

Australia's guarantees are probably just falling in line with the agreement.  I really don't think you have to worry much about your deposits in one of the safest deposit-taking commercial banking jurisdictions in the world.


----------



## Green08 (12 October 2008)

MrBurns said:


> Exactly, once again I'm thinking gold.......




If you have to keep Gold look at this construction for a vault. One in the basement perhaps? http://www.craigcraft.com/mod.html


----------



## Prospector (12 October 2008)

Schmuckie said:


> I have to admit (dumb Canadian here) how surprised I was to find this thread.  Does this mean that Australia did not have a deposit insurance program?




Australia is one of the few countries that didnt have one, although that is changing now.

Rudd is whinging that the previous Government didn't put one in place; well, tough luck Kev because that is what we need now!


----------



## Green08 (12 October 2008)

Here is a link to the APRA website. http://www.apra.gov.au/Superannuation/

it is cumbersome but you may find some information to help you.


----------



## Smurf1976 (12 October 2008)

Prospector said:


> I think if the Government did extend to $100,000 this would actually reduce to nil the risk of any stupid panic.  Actually, probably even the $20,000 is enough.



One major bank and one major local financial institution have blocked access to customers' funds at some point over the past week. Both were supposedly due to "computer problems" which just happend to occur amidst the financial crisis. 

Then the local one announces a proposed merger.

And the government wants to limit its liability to just $20,000 per person.

All of which makes me think the situation is a lot worse in Australia than anyone seems willing to admit. Politicians don't hesitate to promise things unless there's a decent chance they'll be forced to deliver. 

If the alarm is sounding, you can smell smoke and the building is being evacuated then there probably is a real fire. 

Judge for yourself but I can see quite a bit of smoke, several "false" alarms have occurred and a fleet of big red trucks with hoses have arrived out the front. And now the insurance broker is trying to minimse the value of cover whilst at the same time telling us we don't need it anyway because everything's fine and always will be. It all looks rather ominous to me...


----------



## Prospector (12 October 2008)

Thanks for checking all this out Green but we have an SMSF so APRA doesn't apply to us.  Gold is looking good at the moment...


----------



## Green08 (12 October 2008)

"After the Reserve Bank Board has decided the target for the cash rate each month, the Domestic Markets Department of the Bank is responsible for keeping the actual cash rate in the market as close as possible to the target over the ensuing inter-meeting period. A major determinant of the cash rate is the aggregate level of balances held by commercial banks in their exchange settlement accounts at the Reserve Bank. *These are the funds that banks rely on to meet their daily settlement obligations to each other and to the Reserve Bank. If banks do not have enough of these funds, they risk failing in their payments, so a shortage of funds causes banks to bid more aggressively in the money market to try to restore their holdings. *On the other hand, because these funds earn an interest rate that is below the rate that could be earned in the market (25 points below the cash rate), banks do not want to hold more than necessary. As such, a build-up in exchange settlement balances makes banks more eager to lend funds, and this pushes market interest rates down."
http://www.rba.gov.au/Speeches/2007/sp_dg_280807.html


----------



## Nyden (12 October 2008)

MrBurns said:


> Just to add to the problem, even if you do keep your cash safe will it be worth anything ? The hyper inflation that all the throwing of billions around like so much small change will create will mean your paper money will be worth bugger all.
> 
> Go to gold ???????????????




I could be mistaken, but surely the destruction of credit / loss of money from all account holders would completely negate any inflation as a result of this ... heck, the USD hasn't fared too badly from failing banks, has it?


----------



## Julia (12 October 2008)

Green08 said:


> Superannuation or managed funds will not be covered by the scheme, and deposits at banks not regulated by APRA will also not be insured. "
> 
> http://www.news.com.au/business/money/story/0,25479,24375006-5013952,00.html






MrBurns said:


> Great so SMS funds in cash in the bank are not guaranteed.




Mr Burns, I doubt that this is the correct interpretation of the info supplied above by Green08.

I would have thought that the phrase "superannuation or managed funds" would refer to public super funds and managed funds, and that cash as part of a personal SMSF would receive the same treatment as a personal account provided it's with an APRA regulated bank.

But I don't know.  Obviously the government are in the throes of thinking all this through.   

I have significant funds in cash with CBA and with ANZ via E-trade cash account and am not at all concerned that they are unsafe.   It's easy to allow the climate of fear to instil more worry than is really justified.

However, I do agree with Prospector's suggestion that we are not being told everything by a long shot.  So far I support the way the government is handling what is a moving situation, and think they're right not to jump into rash promises at this stage.

And as far as any bank guarantees are concerned if they're only likely to guarantee a maximum of $100K then a lot of people are up for losing a lot of money if anything were to go badly wrong.


----------



## Green08 (12 October 2008)

Just providing information for others to further research if they wish. 

As mentioned, there is alot of detail that is needed.  Personally I move to the side of caution.

With so many experts being wrong in their predictions I do for my family what I feel is right.  As all will do, circumstances are different for everyone.


----------



## Prospector (12 October 2008)

For once I hope the headline is correct:

http://www.news.com.au/business/money/story/0,25479,24481708-14327,00.html

*All* Bank deposits guaranteed for three years........no mention of the upper limit yet but here's hoping it will be $100k, which means I can do some shuffling into different accounts...


----------



## Nyden (12 October 2008)

Prospector said:


> For once I hope the headline is correct:
> 
> http://www.news.com.au/business/money/story/0,25479,24481708-14327,00.html
> 
> *All* Bank deposits guaranteed for three years........no mention of the upper limit yet but here's hoping it will be $100k, which means I can do some shuffling into different accounts...




Just heard it on the TV as well Prospector.

Definitely a little reassuring.
 ... Might also give a little reason to start buying AUD again for international investors.


----------



## xoa (12 October 2008)

I agree with guaranteeing deposits. Our savings rate is already sharply negative; there needs to be more incentive to save, especially with the RBA's reckless interest rate cuts.

However, pumping another $4bn into the toxic mortgage market is like flushing money down the toilet.  The government is forcing every Australian taxpayer to take a stake in the housing bubble.


----------



## Pommiegranite (12 October 2008)

Prospector said:


> For once I hope the headline is correct:
> 
> http://www.news.com.au/business/money/story/0,25479,24481708-14327,00.html
> 
> *All* Bank deposits guaranteed for three years........no mention of the upper limit yet but here's hoping it will be $100k, which means I can do some shuffling into different accounts...




Hmmmm...just wondering how the sharemarket will react. 

Will it be postive?

OR

Will all the investors who were nervous of banking cash, now cash out of the sharemarket, driving it down further?


----------



## jackson8 (12 October 2008)

THE Federal Government will guarantee all money deposits of any size for the next three years as a key step towards safeguarding the nation from the impact of the global financial crisis. 
Prime Minister Kevin Rudd today said that local banks remained in first class shape but the global financial crisis was affecting confidence across the world, including in Australia.

just read this on news site .
pretty bold position to take on by the government


----------



## MrBurns (12 October 2008)

> Prime Minister Kevin Rudd has announced that the Government will guarantee all deposits in all Australian banks and other financial institutions for the next three years.




All deposits implies just that ALL, regardless of the amount or savings institution. So....... I can move my money to a dodgy one offering a large return ........safely. HA no I wouldn't risk it anyway.

This may mean there will be an influx of funds from OS to our banks.

Dont think it will have an effect on the share market, that will go it's own way regardless.


----------



## MrBurns (12 October 2008)

Ok what the secret sound ?..........

Oh yes I know that one........... thats the sound of 15 million people penciling 12th October 2011 into their diaries.


----------



## Prospector (12 October 2008)

MrBurns said:


> This may mean there will be an influx of funds from OS to our banks.
> 
> Dont think it will have an effect on the share market, that will go it's own way regardless.




I think I read that overseas funds coming into Australia was one of their hopes.  I agree I dont think it will impact on the share market but it should stop a lot of panic withdrawals


----------



## pepperoni (12 October 2008)

MrBurns said:


> All deposits implies just that ALL, regardless of the amount or savings institution. So....... I can move my money to a dodgy one offering a large return ........safely. HA no I wouldn't risk it anyway.
> 
> .




Wouldnt risk it? There is no risk!

Subject to clarifying the date this starts and the terms of the gtee all my money will go here at 8.1% ZERO RISK 

http://www.bankwest.com.au/Personal/Savings_and_Investment/TeleNet_Saver/index.aspx

Much more money to be made in busts than booms IMO


----------



## Green08 (12 October 2008)

When I see the legislation in writing - short of their blood seal - I'll take them a little more seriously.  

Politicians love to change angles so don't get to comfy with what comes, they could always change it later.


----------



## MrBurns (12 October 2008)

Green08 said:


> When I see the legislation in writing - short of their blood seal - I'll take them a little more seriously.
> 
> Politicians love to change angles so don't get to comfy with what comes, they could always change it later.





Yes this will all be chummy until they catch Rudd pi#@ing himself laughing next to Swan saying 







> "Swanny how's that! they'll believe anything.
> I'll be on the first VIP flight to China if I have to cough up on that one.


----------



## MrBurns (12 October 2008)

> Bank lending will end credit crisis, says IMF chief




If it's that easy why dont the Govt's guarantee all the banks against each other and cross their fingers.


----------



## kitehigh (12 October 2008)

I was talking with my Brazilian mother in-law a few weeks back and she was telling us how in the early 90's the Govt froze everyones banks accounts.  No one could draw any money out (probably except for a few political elite), and instead people were issued food stamps to exchange for food.  I think the last time Australia saw food stamps was back in WW2, correct me if I am wrong.

After a 12 month freeze on bank withdrawals they were given 50 cent to the dollar of their original holdings.  A similar thing happened to Argentina in 2003, and Argentina was one of the wealthiest countries in the early 1900's.

Just thought I would share with you a real life example of a money freeze and some of the results.


----------



## Green08 (12 October 2008)

MrBurns said:


> If it's that easy why dont the Govt's guarantee all the banks against each other and cross their fingers.




Mr Burns with your corporate intellect you would know that they would have to trust each other  I don't think that is humanly possible.  Look at Ms Kelly traitor to St George with information to Westpac,  Maybe like each other just a smither!


----------



## pepperoni (12 October 2008)

Gonna be messy to implement.

Will destroy deposits of cba etc ie the old "we pay 6.8% when bankwest pays 8.1% but your money is safer with us" suddenly doesnt work anymore.

Hardly rewards prudent bank operations!


----------



## MrBurns (12 October 2008)

Green08 said:


> Mr Burns with your corporate intellect you would know that they would have to trust each other  I don't think that is humanly possible.  Look at Ms Kelly traitor to St George with information to Westpac,  Maybe like each other just a smither!




Oh yes Trust, I'd forgotten that. thankfully..........


----------



## Prospector (12 October 2008)

So, all Bank accounts, Credit Unions, and Building Societies, irrespective of the amount, are guaranteed. I am impressed.  I have recorded it on my pvr so he can't change his mind now 



pepperoni said:


> Gonna be messy to implement.!




I think that's the point, he doesnt consider it a risk



pepperoni said:


> Will destroy deposits of cba etc ie the old "we pay 6.8% when bankwest pays 8.1% but your money is safer with us" suddenly doesnt work anymore.
> 
> Hardly rewards prudent bank operations.!




That is the small picture stuff which has been over-ridden by the global big picture.  Australia's 'banks etc' are clearly more prudent that most other countries anyway, so in the overall scheme of things the prudent bank operations apply across the board.


----------



## MrBurns (12 October 2008)

> Originally Posted by pepperoni
> Will destroy deposits of cba etc ie the old "we pay 6.8% when bankwest pays 8.1% but your money is safer with us" suddenly doesnt work anymore.




I think you'll find Bankwest will reduce their rates for deposits.


----------



## Nyden (12 October 2008)

MrBurns said:


> I think you'll find Bankwest will reduce their rates for deposits.




No, what I think will happen is that interest rates will nearly be the same across all banks now. I just heard advertised on TV a non-promotional variable rate of 7.5%. Doesn't matter anymore if it's a "safe" bank, so why would anyone go to Commonwealth bank for 6.5, if they can get an additional 1% with no risk?


----------



## MrBurns (12 October 2008)

Nyden said:


> No, what I think will happen is that interest rates will nearly be the same across all banks now. I just heard advertised on TV a non-promotional variable rate of 7.5%. Doesn't matter anymore if it's a "safe" bank, so why would anyone go to Commonwealth bank for 6.5, if they can get an additional 1% with no risk?




Thats why the others will reduce their rates, they dont NEED to offer more now they are just as safe as the big 4.

The others wont raise their rates, times are tough.

This takes the competition out of the banking system effectively.


----------



## Nyden (12 October 2008)

MrBurns said:


> Thats why the others will reduce their rates, they dont NEED to offer more now they are just as safe as the big 4.
> 
> The others wont raise their rates, times are tough.
> 
> This takes the competition out of the banking system effectively.





I still think banks are desperate to hold onto money; and competition will drive all prices up -  now that the big 4 have to actually compete against the much smaller banks. Getting credit from overseas is proving to be very difficult and costly right now ... so, I struggle to see why they wouldn't need to actually be *more* competitive now.


----------



## chops_a_must (12 October 2008)

Nyden said:


> I still think banks are desperate to hold onto money; and competition will drive all prices up -  now that the big 4 have to actually compete against the much smaller banks. Getting credit from overseas is proving to be very difficult and costly right now ... so, I struggle to see why they wouldn't need to actually be *more* competitive now.



I think we will now find out which banks are more vulnerable...

or fighting for market share like BOQ, which seems to already have a strong deposit base.


----------



## pepperoni (12 October 2008)

Good discussion, but im betting small banks will still offer great rates to attract new deposits as they always have.

Funny thing is CBA offered be 7.5% before the 1% cut and 7.5% after.  The desperation for cash is stronger than ever.

And k rudd and swan seem verry worried after this weekend .... k rudd "im gteeing deposts to restore confidence, because this next phase is going to be scarier" ha ha.


----------



## Sir Burr (12 October 2008)

pepperoni said:


> Gonna be messy to implement.
> 
> Will destroy deposits of cba etc ie the old "we pay 6.8% when bankwest pays 8.1% but your money is safer with us" suddenly doesnt work anymore.
> 
> Hardly rewards prudent bank operations!




Yeah but that CBA rate of 6.8% (fixed) is for 12 months. The BankWest 8.1% is  paid until 1 January 2009 and after that it reverts to the standard 7.10%p.a. (variable).

Edit: On Kochie's show tonight - reckons interest rates will drop a fair bit over the next 12 months so 6.8% might end up in front if the BankWest 7.10%p.a. (variable) drops.


----------



## JacknLime (12 October 2008)

Is ING Direct covered by the federal governments guarantee on bank deposits? Looking at the info on their site it reads like it would be but just want to make sure


----------



## Julia (12 October 2008)

pepperoni said:


> G
> Funny thing is CBA offered be 7.5% before the 1% cut and 7.5% after.  The desperation for cash is stronger than ever.



Where did you get that information from?  Can you provide a reference, please?
I had a CBA term deposit rolled over on 30 September, just a few days before the rate cut.  The new rate is 7.5%.   After the announcement of the rate cut I looked at the CBA website to see if the full cut had been passed on to depositors.   No.  the new rate for five months is 7.1%, so they have cut by 4 basis points.

Here is a screenshot of their term deposit rates as of this evening.


----------



## Julia (12 October 2008)

Prospector said:


> So, all Bank accounts, Credit Unions, and Building Societies, irrespective of the amount, are guaranteed. I am impressed.  I



Prospector, I heard this on the 5pm news when driving home.  I was overcome by lovely warm fuzzy feelings with the thought that the government is so concerned about the anxiety of its citizens that it is taking this extraordinary step.

Then I thought, aha, they are determined to go one better than Malcolm Turnbull's suggestion that they must guarantee the first $100,000, and some of the warm fuzzies dissipated.  Just a political move after all, perhaps.

Then later I heard Mr Rudd saying that the government had been "forced into this move" so our banks would not be disadvantaged on the global scene, and all the warm fuzzies went away.

For a short time I actually believed we had a government which really cared about the people and their collective anxiety.

For all that, it's a comprehensive and seemingly corrective move, and all credit to the government for doing it.


----------



## xyzedarteerf (12 October 2008)

What about those holding accounts in ING Savings in Australia? Who owns ING Group?






http://www.ing.com/group/stockticker.jsp?lang=EN&menopt=ivr|shf|stc


----------



## GreatPig (12 October 2008)

JacknLime said:


> Is ING Direct covered by the federal governments guarantee on bank deposits?



The statement I read said including Australian subsidiaries of foreign banks, so I would assume that would include ING Direct, Rabobank, Bank of China, etc.



			
				Julia said:
			
		

> For a short time I actually believed we had a government which really cared about the people and their collective anxiety



But they do. Remember, all those anxious people are also voters! 

GP


----------



## georgey (13 October 2008)

Hi all, so therefore the likes of ADB/BEN are as safe as 
the big 4. ADB are/were the bank behind Leveraged Equities so
was wondering how this crisis would affect funds used for margin
trading, was thinking of using them to daytrade the long side
for a while?


----------



## auric (13 October 2008)

must be more regulation to come, 
to level the playing field .. min dep on houses...common interest rate etc or else there will be a run between banks instead of to cash and safest banks...


----------



## profit off it (13 October 2008)

Please correct me if I'm wrong but I assume the guarantee is only for the principal in your account, not any interest that would have been payable?


----------



## Prospector (13 October 2008)

Once the interest is paid into your account is belongs to you.  Future interest?  Well, if it is that bad that a bank goes belly up as long as I get what I can see in my account then I would be grateful to just get that.


----------

