# Secured deposits - how safe is your money?



## Uncle Festivus (21 January 2015)

In light of other central banks efforts to impose negative interest rates and the health of the baking system generally, I'm trying to find out if there is any such thing as a secured cash deposit ie be first in line as a creditor should an entity such as a bank have a run on deposits etc

Banking deposits do not count as secured creditors as far as I can tell - stand in line if there's a bank run......

The government deposit guarantee is only good for $250k, and even that would be flaky in a crisis?

Got no more room under the mattress, so where do I keep cash as a secured creditor?

Listed company debt, government bonds, bank commercial loans????


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## skyQuake (21 January 2015)

Uncle Festivus said:


> In light of other central banks efforts to impose negative interest rates and the health of the baking system generally, I'm trying to find out if there is any such thing as a secured cash deposit ie be first in line as a creditor should an entity such as a bank have a run on deposits etc
> 
> Banking deposits do not count as secured creditors as far as I can tell - stand in line if there's a bank run......
> 
> ...




US treasuries would be the no.1 go to safe haven


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## McLovin (21 January 2015)

Uncle Festivus said:


> Listed company debt, government bonds, bank commercial loans????




Bank deposits outrank _all_ other creditors in the event a bank goes belly up. They essentially have a floating charge over all the banks assets.


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## skc (21 January 2015)

Uncle Festivus said:


> The government deposit guarantee is only good for $250k, and even that would be flaky in a crisis?




I don't think that will be flaky in a crisis. I guess the government can just 'print' the sums required to honour this guarantee. But whether the $250k you get is worth as much as you think/hope, should such events come to pass, is another matter.


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## DeepState (21 January 2015)

McLovin said:


> Bank deposits outrank _all_ other creditors in the event a bank goes belly up. They essentially have a floating charge over all the banks assets.




Covered bonds outrank depositors.


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## doctorj (21 January 2015)

McLovin said:


> Bank deposits outrank _all_ other creditors in the event a bank goes belly up. They essentially have a floating charge over all the banks assets.




I'm not sure that's the case.  My understanding is that in Australia, Bank deposits outrank senior unsecured creditors, but not senior secured.  I'm also not sure where deposits sit relative to employee claims and taxes.  This paper, though incomplete, is worth a read: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2413358


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## Uncle Festivus (22 January 2015)

DeepState said:


> Covered bonds outrank depositors.




Yes, I'm looking at these.

Another informative doc here - http://www.rba.gov.au/publications/bulletin/2011/dec/pdf/bu-1211-5.pdf


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## doctorj (22 January 2015)

DeepState said:


> Covered bonds outrank depositors.




An interesting bit of trivia... Covered Bonds date back to Prussia 1769 (called Pfandbriefe) and as far as I'm aware, there hasn't been a single covered bond since that has failed to repay principal. That's not say that it can't happen, but they are particularly robust structures in the right legal jurisdiction.  I've been investing in these for a few years on behalf of my employer, so I may be able to answer any questions you have.  Feel free to drop me a direct message or start another thread and I'd be happy to do my best to help.


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## Uncle Festivus (26 January 2015)

DeepState said:


> Covered bonds outrank depositors.




Covered bonds looked promising until I found this - 



> Under the Banking Amendment (Covered Bonds) Act 2011, any residual claim of covered bond investors on an issuer ranks below claims of most depositors and the government.




Back to the drawing board.....


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## doctorj (26 January 2015)

Uncle Festivus said:


> Covered bonds looked promising until I found this




This refers only to a residual claim – i.e. after the covered bondholders recover value from the ringfenced pool, which will have some level over-collateralisation and diversification etc to protect investors.  Most covered bonds relate to pools of mortgages with modest LVRs, so whilst mortgages certainly can go bad (and they can end up quite correlated), the mortgages that usually form the cover pool tend to be the better quality mortgages.

If the pool is insufficient to repay covered bond holders, they have a residual claim that ranks pari passu with other senior unsecured creditors to the wider bank balance sheet. 

Not so bad IMHO, though I prefer the thought of some of the more innovative covered bonds that use SME loans that have relatively short maturities so the pool has greater liquidity and can self-liquidate in a reasonable period vs a mortgage pool that will likely have to be sold to third party investors in the case something goes wrong.


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## McLovin (27 January 2015)

doctorj said:


> I'm not sure that's the case.  My understanding is that in Australia, Bank deposits outrank senior unsecured creditors, but not senior secured.  I'm also not sure where deposits sit relative to employee claims and taxes.  This paper, though incomplete, is worth a read: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2413358




I don't think that's the case...



> Priorities for application of assets of ADI in Australia
> 
> (3)  If an ADI becomes unable to meet its obligations or suspends payment, the assets of the ADI in Australia are to be available to meet the ADI's liabilities in the following order:
> 
> ...




http://www.austlii.edu.au/au/legis/cth/consol_act/ba195972/s13a.html

nb: protected accounts are essentially all bank accounts.


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## DeepState (28 January 2015)

McLovin said:


> I don't think that's the case...
> 
> 
> 
> ...




Two lines below where the clip provided ends...



> (3A)  The assets of an ADI are taken for the purposes of subsection (3) not to include any interest in an asset (or a part of an asset) in a cover pool for which the ADI is the issuing ADI.




From RBA in reference to the Banking Amendment (Covered Bonds) Act 2011



> ..there is a cap on covered bond issuance by ADIs to limit the subordination of depositors to covered bond investors


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## McLovin (28 January 2015)

DeepState said:


> Two lines below where the clip provided ends...
> 
> 
> 
> From RBA in reference to the Banking Amendment (Covered Bonds) Act 2011




Yes, covered bonds aren't part of the breakdown.

ETA: I just read what you posted upthread re covered bonds.


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## Uncle Festivus (16 September 2015)

I saw an interesting figure quoted in another thread for banks loan to deposit ratios which got me thinking - are our banks having a liquidity crunch? copied from another thread.

Something is going on here I think, and it is directly related to China? There have been reports of a crackdown on capital outflows from Chinese citizens already having an impact on the Aus property market in the last month?

The really interesting thing is that I got a call from the CBA last week asking if I felt all warm and fuzzy about being a customer and would I like to get a better interest rate on my accounts. I've never had this before as I've usually been the one to ask for a discretionary rate above the official rates. Naturally I said yes and so got another half percent just like that, at call. I also got her direct cba email to have cozy chats with - my own private banker?? WT?

I also handle my parents accounts and was able to get 3.5% at call with St George no problems.

I wonder if this means that unofficial rates will have to rise to attract bank capital in absence of the foreign depositors? Until that is, the local demand for housing finance drops off a precipice when the bubble finally bursts?

It will be interesting at the end off the month when I tell her I'm going to withdraw my money to another bank....are depositors finally having the last laugh?


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