# How safe are banks?



## Tyler Durden (10 July 2011)

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?


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## robusta (10 July 2011)

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


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## Tyler Durden (10 July 2011)

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


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## addison (10 July 2011)

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


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## ROE (10 July 2011)

As safe As Aussie Government 

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


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## tollbridge (10 July 2011)

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...


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## Glen48 (11 July 2011)

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


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## Tyler Durden (11 July 2011)

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


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## springhill (11 July 2011)

Tyler Durden said:


> 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?


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## Starcraftmazter (11 July 2011)

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.....


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## Tyler Durden (12 July 2011)

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?


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## VSntchr (12 July 2011)

Tyler Durden said:


> 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...?


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## Starcraftmazter (12 July 2011)

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



Tyler Durden said:


> 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.


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## basilio (12 July 2011)

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 ?


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## Tyler Durden (12 July 2011)

VSntchr said:


> 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).



Starcraftmazter said:


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




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?


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## Starcraftmazter (12 July 2011)

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).




Tyler Durden said:


> 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.


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## Tyler Durden (12 July 2011)

Starcraftmazter said:


> 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.



			
				Starcraftmazter said:
			
		

> 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.


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## Starcraftmazter (12 July 2011)

Tyler Durden said:


> 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.


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## G-Zilla (12 July 2011)

Starcraftmazter said:


> 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.


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## Starcraftmazter (12 July 2011)

G-Zilla said:


> 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?


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## ROE (12 July 2011)

G-Zilla said:


> 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.




Holding gold if you are 100% sure paper based money will collapse and even then there is no guarantee what gold will be worth.... what if these predictions never eventuate? you are losing an income stream each day you holding gold, your only hope is someone willing to pay more for it than you...

Holding income producing business or housing guarantee you an income regardless of how the system turn out .... If the current paper money collapse, I can accept new money, If no paper money, I can accept gold for my rental property and I can accept gold selling ice cream and coffee 

Gold is not an investment, it has very little utility use unlike silver or copper
it doesn't produce an income, it costs you to hold...all it does is probably give you
temporary safety in a complete melt down of the system in country like Zimbabwe

that system unlikely to happen here in Australia  

it is unlikely to happen here so holding gold has so many negative with little positives ... high risk low return scenario ...

I have lived through that system melt down as a kid in another country and believe me the guys that has a business do hell a lot better than the guys holding gold....

local paper collapse they start accepting US currency and gold as alternatives so they keep working around the system and continuously generate an income...it matter little for them what the medium of exchange people use..


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## Garpal Gumnut (12 July 2011)

Any sector that gives out $50 notes at Luna Park, instead of $20 ones is inherently risky.

gg


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## Julia (12 July 2011)

Starcraftmazter said:


> 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.



The foreign owned banks were also covered under the government guarantee, as were the smaller local banks.  I have deposits with Rabodirect and these were fully guaranteed.  Still are, I think.

One of the more irritating suggestions during the GFC was that the banks should be immensely grateful to the government for offering the guarantee.  In reality, the banks paid a pretty substantial fee to the government for this guarantee.


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## Starcraftmazter (12 July 2011)

ROE said:


> Holding income producing business or housing guarantee you an income regardless of how the system turn out ....




What happens if there is major civil unrest and rioting during some transitional period, and your business gets trashed and all assets stolen/broken/etc?


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## ROE (12 July 2011)

Starcraftmazter said:


> What happens if there is major civil unrest and rioting during some transitional period, and your business gets trashed and all assets stolen/broken/etc?




and people cant steal your gold or rob you when this happen?

I mean some of the imagination people use are ridiculous ...

Anything is possible but people has to use common sense ...

I will bet 99% of my wealth on that that will never ever happen in Australia.

so we have a system collapse and you own some Woolies shares you think the decent people in this country will just let it happen and becomes an anarchy ?
and Woolies will be in a stage where it is completely destroyed???

people do have some wild imagination.

I can tell you a time when there is new currency exchange  I been through it ...

nothing close to your wild imagination ... yes people panic, yes people do get scare
and yes some people will lose a lot of their money ...

but as long as you have strong arms force in place ...the process was painless..
no rioting or people destroyed your business and if you want to be the first
they will shoot you 

PS: Look at the US 1929 Great depression, there is some serious problem there
heaps of people starving and wealth destroyed, people sleep on the street etc..
anything major happen?

PSS: if you want some imagination listen to George Soros, he talk about buying a farm, taking up machine guns 
etc.. I have respect for the guy but that stuff is pure entertainment


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## Starcraftmazter (12 July 2011)

ROE said:


> and people cant steal your gold or rob you when this happen?




Well, there are some options here, you could for instance burry it somewhere in the wilderness. Or maybe in your back yard if you're a wee bit lazy.



ROE said:


> I mean some of the imagination people use are ridiculous ...
> 
> Anything is possible but people has to use common sense ...
> 
> I will bet 99% of my wealth on that that will never ever happen in Australia.




Not an imagination so much as accounting for every possibility. These sorts of things can and do happen in our modern world. Not so much in Australia - but that could quickly change if our economy deteriorates significantly.



ROE said:


> so we have a system collapse and you own some Woolies shares you think the decent people in this country will just let it happen




I admire your spirit, but the flaw in your thinking is a denial of the possibility that it will happen - and that if it does, the possibility that nothing can stop it - at least not for the short-term, and I emphasise short-term. Just think if for some reason our money system collapsed. It could take only two weeks for the people at the top to come up with a new one, but in that space of time, what exactly do you think will happen to all the businesses and what will people do to all the shops in order to obtain the goods which they would have otherwise been able to buy but cannot?

I hear some people go nuts without their coffee 


I like to explore every possibility. And think very long-term.


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## basilio (12 July 2011)

It is very hard to imagine the fallout of a financial collapse in the current economic world.  A few points that come to mind are :

1) At least in the Western World we have never been so dependent on financial institutions to hold and transfer monies. In simpler times and in simpler countries a stronger non market economy is more resilient to collapse of financial systems.

2) I think the debts of countries has never been higher in terms of GDP.  I just can't see how these will be ever "paid" and I struggle to see where the failure to pay these monies will end. Someones loan is someone else's "assets"  -  I think.. 

3) Our Western economies have never been more complex.  In the case of a financial collapse I could see all sorts of economic activities grinding to a halt. One simple example. The failure of electricity systems in modern cities would bring them to collapse in a matter of days. Thats roughly how long it would take for  sewage systems, water supplies, fuel supplies and food supply problems to escalate out of control. 

Perhaps we don't want to think about these possibilities ?

______________________________________________________________

One thing I do remember was the impact of financial collapse in Russia in the mid 90's. Quite horrific and all that kept people going in most cases was the vast informal non market economies of home grown food and barter. 



> *Back from the future collapse*
> by Ugo Bardi
> 
> *    With his book "Reinventing Collapse", Dmitry Orlov reports to us from a collapse that he has actually experienced with the fall of the Soviet Union. Russia's past is our future and Orlov's book is a time machine to there.*
> ...




http://www.energybulletin.net/node/46674


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## Starcraftmazter (12 July 2011)

^ Interesting stuff mate. I wonder how 20 years info the future (ie. now), in a world where farming would produce far less without oil and phosphorous based fertilizers, how people can even barter to obtain the same goods - which cannot be produced without the inherent complexity lost in the collapse


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## basilio (12 July 2011)

> ^ Interesting stuff mate. I wonder how 20 years info the future (ie. now), in a world where farming would produce far less without oil and phosphorous based fertilizers, how people can even barter to obtain the same goods - which cannot be produced without the inherent complexity lost in the collapse




We will learn to live simply and sustainably because there won't be a choice. 

Or else we won't.


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## Starcraftmazter (13 July 2011)

basilio said:


> We will learn to live simply and sustainably because there won't be a choice.
> 
> Or else we won't.




Sure, but what happens with all the humans we are unable to feed in the meantime? How is it decided who gets the food?


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## RandR (13 July 2011)

Starcraftmazter said:


> Sure, but what happens with all the humans we are unable to feed in the meantime? How is it decided who gets the food?




wealth, wealth will decide.

but ... big arms and a weapon could tip tip the odds in your favour

i think were pretty safe here in australia (in terms of food and energy security) but i sure wouldnt want to be in a country that doesnt have energy assets, and doesnt have agricultural ability.


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## Uncle Festivus (13 July 2011)

Ditto basilios comments in post 27. 

It would be the domino effect that we should be afraid of. We should at least be concerned, because the big 4 have approx 60-70% of their 'assets' in real estate. There is a concerted effort at all levels to keep housing prices at unsustainable levels ie through the various freebies & grants given out, because they know that a protracted property downturn would have severe negative flow on effects for the rest of the economy. Average property prices have been falling for the last year and we have a retail recession - no coincidence?

Seeing that we know don't have anything to export other than commodities, and that China is showing signs of slowing, then it would be reasonable to assume we will have some sort of slowdown as well? 

How safe are they? If you did the sums you would realise that the government deposit guarantee is simply a confidence trick - they simply wouldn't have the money to do it.

Actually, the whole global financial system is a con job - a ponzi scheme - continually needing new funds to 'grow'.

While ever the banks can still get their funding from OS then we keep going, but if the Euro or USA or China implode then all bets are off - get your money out before they freeze withdrawals.

It's getting to an interesting stage, so anything is possible, so we should at least plan for any eventuality?


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## Glen48 (13 July 2011)

Banks are safe if you are shorting them should work out well.

 As for Gold and Pm's when shooting starts do you run towards the firing or away from it in other words once paper paper money proves to be a dud you look for some thing else for security PM are the only ones.
And Gold when up again last night as we get close to 2 Aug it should continue to rise proving it has legs.
 We will do the same as USA once housing starts to die  support the banks and get deeper into debt.


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