# Customers could recover $20,000 if Australian bank collapses



## metric (28 March 2008)

why does this story make me nervous?


http://www.news.com.au/business/story/0,23636,23444519-462,00.html

BANK customers would be guaranteed to quickly recover $20,000 of their deposits if their bank collapsed under a plan before the federal Government to retain confidence in the nation's financial system.

The Reserve Bank said the nation's banking system remained robust despite the global credit squeeze caused by the collapse of the US sub-prime mortgage market last year. 

But it revealed the nation's peak financial regulators, led by the Reserve Bank, had recommended the commonwealth introduce a scheme to guarantee to quickly repay the first $20,000 of customer's deposits with a bank, building society or credit union if the institution collapsed. 

The scheme would involve the commonwealth repaying the failed institution's customers with funds it has on deposit at the Reserve Bank, and then recovering the money by selling the institution's assets. 

The move, first considered by the Wallis inquiry into the banking system in 1997 and revived after the 2001 collapse of insurance giant HIH left many policyholders out of pocket, would help protect Australians from losing money in the event of a bank collapse such as the recent failure of Northern Rock in Britain or Bear Stearns in the US.


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## Aussiejeff (28 March 2008)

metric said:


> why does this story make me nervous?
> 
> 
> http://www.news.com.au/business/story/0,23636,23444519-462,00.html
> ...




I'd like to comment on the bit I've highlighted. In the event of any of our majors collapsing, the chances of OUR Fed recovering THEIR deposits in any meaningful degree from the sale of any major collapsed bank(s) assets would be rather slim, wouldn't it? I mean, in the ensuing financial market PANIC induced by such a major bank collapse, would any insitution in its right mind be wanting to buy into the resulting fiasco just to help save the Fed's self-induced liquidity problem???

Fair dinkum. Someone has to "Pay the Piper" eventually.... these never-ending smart-a**plans to shovel sh*** from one side of the road to the other ad-infinitum have to fall flat sooner or later.  

IMO



AJ


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## ROE (28 March 2008)

Is this the omen to comes to Australian Banks?
With massive mortgage debt and the income to debt ratio is at all time high

Government don't consider this sort of legislation if there is zero chance the bank collapse. My preparation work start today


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## gfresh (28 March 2008)

Well this pretty much confirms what was suspected in the other thread, *there is no explicit protection for deposits with our banks presently*

$20k isn't enough.. even if you spread them between the four major banks, that's only $80k. Many people that have recently sold up a home or shares due to the current conditions would likely be sitting on several multiples of that. When "cash is king" when everything else is failing, it's vital that is protected.


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## metric (28 March 2008)

one can understand why people put trust in gold and silver when banks or gov start talking like this.


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## Trembling Hand (28 March 2008)

The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.


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## xoa (28 March 2008)

It's true that something needs to protect depositors against the havoc threatened by debt junkies and real estate speculators. However, it should be done within the framework of the free market. Depositors already get first claim in the event of a bank collapse.. in Australia, this includes the assets of the bank's derelict debtors.


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## Kauri (28 March 2008)

Trembling Hand said:


> The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.




  but who has provided/bought that insurance...   
Cheers
.........Kauri


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## cuttlefish (28 March 2008)

Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.

Just confirms that cash may not be king this time around - unless you've got it in notes stuffed in a mattress somewhere.


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## brty (28 March 2008)

TH,

What makes you think that if the brown stuff hits the fan, the insurance company will be able to honour their obligations to pay out your $mil??

bye

brty


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## Kauri (28 March 2008)

cuttlefish said:


> Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.
> 
> Just confirms that cash may not be king this time around - unless you've got it in notes stuffed in a mattress somewhere.




even that has its hazards... my nearest and dearest decided that the old bed had had a hard life and decided to surprise me by buying a new one...   the old one has been given to the Sally Annes...   

Cheers
.........kauri


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## noirua (28 March 2008)

The U.K. have recently raised their guarantee on a U.K. Bank failure to $75,000 per customer. The guarantee on the Northern Rock Bank is unlimited.
Any guarantee, as the title says, would only cover an Australian Bank and not a Foreign Bank, which would only be covered by its domain legislation on deposits.


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## Trembling Hand (28 March 2008)

brty said:


> What makes you think that if the brown stuff hits the fan, the insurance company will be able to honour their obligations to pay out your $mil??





Kauri said:


> but who has provided/bought that insurance...
> Cheers
> .........Kauri





cuttlefish said:


> Whoever provided the insurance, I'm sure their AAA rated, just like Ambac lol.




yes yes yes.

:iagree::iagree::iagree:

That's why I take all my profit each week and spend it on expensive women and booze.


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## cuttlefish (28 March 2008)

Kauri said:
			
		

> ... my nearest and dearest decided that the old bed had had a hard life and decided to surprise me by buying a new one...  the old one has been given to the Sally Annes...




hahah I could just picture it too.



			
				Trembling Hand said:
			
		

> That's why I take all my profit each week and spend it on expensive women and booze.




lol thats the way!


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## Aussiejeff (28 March 2008)

noirua said:


> The U.K. have recently raised their guarantee on a U.K. Bank failure to $75,000 per customer. The guarantee on the Northern Rock Bank is unlimited.
> Any guarantee, as the title says, would only cover an Australian Bank and not a Foreign Bank, which would only be covered by its domain legislation on deposits.




So, who underwrites the guarantor (U.K.) guaranteeing the "unlimited" guarantee to Northern Rock?

Where does "the buck" stop?


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## IFocus (28 March 2008)

Trembling Hand said:


> yes yes yes.
> 
> :iagree::iagree::iagree:
> 
> That's why I take all my profit each week and spend it on expensive women and booze.




Now thats a real investment........


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## Julia (28 March 2008)

Isn't the suggestion of the $20,000 per depositor just a sort of emergency payment to tide the customer over until it can all be sorted out/bailed out?

Here is another article on it:

http://www.sharecafe.com.au/article_air.asp?a=AV&ai=7934


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## Aussiejeff (29 March 2008)

Julia said:


> Isn't the suggestion of the $20,000 per depositor just a sort of emergency payment to tide the customer over until it can all be sorted out/bailed out?
> 
> Here is another article on it:
> 
> http://www.sharecafe.com.au/article_air.asp?a=AV&ai=7934




Hi Julia.

Ta for the link... Here's a couple of points I took from it...


_"Under the existing legislation, depositors rank ahead of other creditors in a failed ADI, although *they are likely to have to wait some time before they could be repaid.*"_

Obviously, an unspecified amount of time for an unspecified amount of repay (potentially years for zilch?)


_"Given this, the Council is working on an Early Access Facility, which would provide early repayment *of up to* $20 000 per depositor in a failed institution; it is estimated that this cap is sufficient to cover the entire deposits of around 80 per cent of depositors."_

Hmmm. Now that reads to me that $20,000 is not even guaranteed to someone who might have, say, $500,000 deposited. Only _"up to"_ $20,000? 


_"For low-doc loans, the 90-day arrears rate was 0.70% in November 2007 more than double that for prime full-doc loans, but broadly around the level of a year ago. In contrast, the arrears rate on nonconforming loans – which are made to borrowers with poor credit histories – *has risen significantly over the past few years to stand at 7.25%*. These loans, however, account for less than 1% of outstanding housing loans in Australia"._

All the data and graphs shown in the article only include up to Dec 2007. I would bet the data for arrears and defaults is *far worse* now (as at end of March 2008) than what the article has presented.


AJ


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## Prospector (29 March 2008)

Trembling Hand said:


> The only thing that seems to offer any protection is my broker. They have 1 mil cash insurance on each account.




Where do you think Insurance companies will get the money from though?


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## vishalt (29 March 2008)

By deposits do they mean savings? 

If so I better spread my savings across the banks then, jeez way to stoke up the paranoia. 

Now I can understand the whole "F**k America" cliche`, its true when you understand I guess. 

Thanks for the fear mongering, now everyone in this country in the back of their mind has the thought of their bank collapsing and savings in trouble just because the US sub-prime collapses. 

God I will NEVER visit the US.


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## phoenix_gr (29 March 2008)

"Money isn't everything - gold is. F**k T-bills! F**k blue chip stocks! F**k junk bonds! We've got the real deal! Money will always be paper, but gold will always be GOLD!"
    -Darwin Mayflower, Hudson Hawk (movie with Bruce Willis )

If everyone did loose their money, the political party that is in power at the time will not be back in power for the next hundred years, APRA would be bent over a barrel and the rba will have some explaining to do.

Not that this is any concelation to any who lose money, and this event is not likely to happen any time soon, people are just **** scared because they hear sub prime in US, rising Interest Rates in Australia combined with ignorance as to what it all actually means and they run around like headless chooks.


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## Trembling Hand (31 March 2008)

Prospector said:


> Where do you think Insurance companies will get the money from though?




The MIGHTY US fed. From the age today,

"Ironically, were Opes a US broker its clients might have been better off. While Bear is the first big broker to blow up, and be bailed out, since the Great Depression, a plethora of small broking houses has hit the wall. Yet these are regulated by the Securities Investor Protection Corporation, which insures retail investors to the tune of $US500,000 ($A545,000) in the event of a broker defaulting."


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## Temjin (31 March 2008)

The banks are too big to fail. We have a technology so called the "Printing Press". When the force of deflation do come, all the Central Bank need to is to make $100,000,000,000,000.00 out of thin air by simply clicking a mouse button and hope it would solve the problem with massive inflation. 

In the event that there is a bank failure and all deposits were guaranteed, that $20,000 wouldn't have worth the original purchasing power of $20,000 one had initially deposited due to the eroding power of inflation. 

That's my opinion anyway by observing what the global central banks have been doing lately to "solve" the credit crisis.


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