# What would happen if CBA goes bust?



## alphaman (8 March 2008)

Or any aussie bank for that matter? Do our deposits get any sort of protection or compensation if such unlikely event occurs?


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## numbercruncher (8 March 2008)

I think the Gov would nationalise them in the worst case scenario.


But from a legal standpoint I beleive you lose your deposits and the creditors inherit the debts of mortgagees etc.


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## the barry (8 March 2008)

alphaman said:


> Or any aussie bank for that matter? Do our deposits get any sort of protection or compensation if such unlikely event occurs?




They are covered in the two big to fail category, as all of the "four pillars" are. Your deposits would be covered.


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## xoa (8 March 2008)

I'm not sure. Liquidators would prioritise depositors above shareholders. I've spread my term deposits among a variety of banks to reduce my risk. Hopefully the government would have the wisdom to compensate depositors by imposing a retrospective capital gains tax on those who caused the credit crisis.


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## numbercruncher (8 March 2008)

Also they should hold Directors personally responsible and consficate all their assets in such a scenario.


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## refined silver (8 March 2008)

numbercruncher said:


> Also they should hold Directors personally responsible and consficate all their assets in such a scenario.




Absolutely, they should. And they should go after all their assets protected in trusts, wife's name etc. But what will happen is, they would pay themselves massive bonuses before all the depositors and creditors, for managing things so well in such a difficult crisis, and then resign. Later they would turn up on other boards, because of "their invaluable experience and lessons learnt during the last crisis" 

A group without consciences, without morals, without the most basic of human values, at Washington Mutual which has been ravaged by the sub-prime crisis, have worked out a way to calculate bonuses so that they don't miss out, even though the stock has plummetted 70%, and they had received huge stock option bonuses last year "to provide a strong incentive to restore stockholder value". (Their 8 figure salaries obviously weren't enough incentive!)

http://www.reuters.com/article/ousiv/idUSN0555961420080305


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## alphaman (8 March 2008)

the barry said:


> They are covered in the two big to fail category, as all of the "four pillars" are. Your deposits would be covered.



I hope so, but is there actually any legal protection in place? Because I prefer not to simply rely on the government making a politically popular decision to cover our deposits. I checked APRA's website but it's very difficult to find if there is any legal protection.

Like xoa I've also diversified my cash across several banks. I feel so silly that I'm diversifying cash.....


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## disarray (8 March 2008)

numbercruncher said:


> Also they should hold Directors personally responsible and consficate all their assets in such a scenario.




if one of the pillars fell, and people lost their money, the directors would probably lose their lives.


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## gfresh (8 March 2008)

Hmmm.. scary thought, but to be honest, deposits may not as safe as some may think they are.. There is no implicit guarantee. 

An article: http://www.brisbanetimes.com.au/new...o-savings-grace/2007/10/02/1191091073147.html


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## ROE (8 March 2008)

the barry said:


> They are covered in the two big to fail category, as all of the "four pillars" are. Your deposits would be covered.




There is no legal requirement...banks are commercial institution you take a risk when you give them the money that why you get higher rate than bonds...
higher returns has some form of risk.

If you want risk free you buy government bonds


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## sam76 (8 March 2008)

So which bank is best positioned to survive?


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## vishalt (8 March 2008)

What I'd like to know if this subject is far too paranoid.. 

When has a *PILLAR* bank ever collapsed?


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## alphaman (8 March 2008)

gfresh said:


> http://www.brisbanetimes.com.au/new...o-savings-grace/2007/10/02/1191091073147.html




Thanks, great article! So we have no deposit insurance, but we do have "first claim over a failed bank's assets", which obviously is better than nothing.


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## alphaman (8 March 2008)

vishalt said:


> What I'd like to know if this subject is far too paranoid..
> 
> When has a *PILLAR* bank ever collapsed?



You know Barings Bank, the oldest merchant bank in London, also had never collapsed, until 1995.

I know it's an unlikely for a pillar to fall, and it does annoy me that I feel a need to take precaution.


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## numbercruncher (8 March 2008)

A scary little fact is the banks exposure to the derivatives markets exceeds their entire market captilisation


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## kloid (8 March 2008)

ROE said:


> There is no legal requirement...banks are commercial institution you take a risk when you give them the money that why you get higher rate than bonds...
> higher returns has some form of risk.
> 
> If you want risk free you buy government bonds




Government bonds aren't risk free.  Nothing is risk free.  The chance of a bank such as CBA going bust is absolutely tiny (but could happen).  The chance of a government being unable to pay its debts is even more unlikely but it is a possible scenario - there is not a 100% guarantee with government bonds.


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## ROE (9 March 2008)

kloid said:


> Government bonds aren't risk free.  Nothing is risk free.  The chance of a bank such as CBA going bust is absolutely tiny (but could happen).  The chance of a government being unable to pay its debts is even more unlikely but it is a possible scenario - there is not a 100% guarantee with government bonds.




Imagine a scenario where government cant pay bonds? you be in a chaos country where your safety is more of a concern than  money. 

There are dodgy country where economy collapse but Australia, US and most developed country you can be 100% sure they will pay bonds as long as there are people paying tax. They just tax you more  to make the bond payment


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## the barry (9 March 2008)

ROE said:


> There is no legal requirement...banks are commercial institution you take a risk when you give them the money that why you get higher rate than bonds...
> higher returns has some form of risk.
> 
> If you want risk free you buy government bonds




Yes there is, you guys need to read the basel agreement on banking. There is a gaureentee that you will bet your deposits back upto 100 grand and then at then discretionary beyond that point. There is a "to big to fail policy", which i touched on befoe which is in place for the big four. They would be bailed out well before any liquidity problems came up. Impossible for them to fall over.


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## Aussiejeff (9 March 2008)

the barry said:


> Yes there is, you guys need to read the basel agreement on banking. There is a gaureentee that you will bet your deposits back upto 100 grand and then at then discretionary beyond that point. There is a "to big to fail policy", which i touched on befoe which is in place for the big four. They would be bailed out well before any liquidity problems came up. Impossible for them to fall over.





Confucius say "There is possibility for every impossibility..."




AJ


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## YChromozome (9 March 2008)

vishalt said:


> When has a *PILLAR* bank ever collapsed?




Agreed, but also when has the housing bubble ever been this big? When has Australians ever had even close to as much debt as they do today?


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## Smurf1976 (9 March 2008)

ROE said:


> There are dodgy country where economy collapse but Australia, US and most developed country you can be 100% sure they will pay bonds as long as there are people paying tax. They just tax you more  to make the bond payment



If the major banks all failed then they would take most of the economy with them. You can't, in practice, get tax revenue from a broke population with no jobs and worthless assets as would arise under this situation. Bonds are not totally risk free.

Also don't forget that the biggest risk with cash is inflation. You may have the notes kept safely but in due course they lose most or all of their purchasing power.


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