I am worried that there will be a run on banks in Oz

[fourandsixpants]

Our Politicians are saying one thing about the economy, their Dept heads are saying another.....and the cool hand Luke RBA head is subtly saying another.

I remember back when in ?1980 that all the Australian banks were insolvent-but the media did not print or report on this at the time, it was reported after the event was well and truly rectified.

The CBA Netbank service was 'screwy' and their ATM's were not working early this morning......because?....excuses are *weird

What do others here think.

[fourandsixpants]

http://www.macrobusiness.com.au/2012/06/australian-banks-most-profitable-in-the-world/

comments following:

My understanding is that the government guarantee is limited to $20b per ADI without parliamentary approval. To put this in perspective, the CBA from their 2011 annual report had Customer deposits of $349 billion.....(in 2014 ? BIG4 banks each around $400bn)

Not to say that your money isn’t relatively safe, but loaning your money to the bank via way of a savings deposit is not without risk.

As soon as things go wrong, our banks will be crying for bailouts. Banks have taken the profits but the taxpayer will be forced to take the losses.

Zombie banks in Japan, America and Europe are kept on life support at the expense of savers and taxpayers. It won’t be any different here.

Deposits are Govt-guaranteed, you’re more likely to lose your shirt holding Aust Govt bonds than you are losing your deposits.

But cash deposits are vulnerable to inflation other currency movements.....

Huh? If the Gov’t can’t afford to cover their bond payments, how exactly do you think they’re going to cover deposit guarantees? It’s not as though Aussie banks are paying an insurance fee like the FDIC in the US.

The Govt can always remove the guarantee. But they can also print their way out of trouble.

RBA will only remain independent as far as everything is okay. If **bleep** hits the fan, you can bet your ass that the Govt will force them to print before they remove the guarantee (which would cause a bank run).

Additionally, the Govt would always bail out depositors first.

It’s way more politically acceptable to default on our bonds (63% held offshore) than it would be to bankrupt the citizenry.

How would a government guarantee actually work in the event of a bank run? Can you get your cash out when you want it? My own impression is that the guarantee is more of a confidence trick than anything else.

In the event of a bank failure (from whence the word “bankrupt” comes from, after all) you’d get in line and claim the funds back from the government. This puts you ahead of debt & equity holders, in effect.

People think that the higher the profits the stronger the bank when a lot of the time it actually means the bank is weak because it has taken on a lot of risk...........................

[cherry*135]

Committed Liquidity Facility (LCF)

In a globally unique policy, the Reserve Bank of Australia will supply banks with a permanent bailout facility worth up to $380 billion by 2015.

The policy has been designed by the RBA to help banks satisfy stringent new liquidity tests which simulate “acute stress scenarios” that deny banks funding for 30 days under the post-GFC rules, Basel III.

Local regulators argue that insufficient liquid assets such as government bonds meant they had no choice but to give the banks a new taxpayer-backed “line of credit” that could be tapped at a cost just above the RBA’s cash rate. Smaller building societies and credit unions are not subject to the liquidity tests and will not, therefore, have access to the bail-out fund.

AFR

Committed Liquidity Facility

Under the Basel III liquidity standards (to be implemented in Australia from 1 January 2015), APRA will impose a liquidity coverage ratio (LCR) requirement on the larger ADIs. These ‘LCR ADIs’ may seek approval from APRA to meet part of their liquidity requirements through the Reserve Bank's committed liquidity facility (CLF). Where such approval is granted, the Reserve Bank may, in return for a fee, commit to purchasing eligible securities from an ADI under RBA Repo. The Reserve Bank will only make commitments under the CLF to the extent necessary for an ADI to meet its liquidity requirements as dictated by APRA.

http://www.rba.gov.au/mkt-operations/resources/tech-notes/liquidity-facilities.html

Government guarantee on deposits

The Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI.

The cap applies per person and per ADI. So if you have $250,000 with one ADI and $250,000 with another, then both of your deposits are guaranteed. If you have more than $250,000 with one ADI then only up to $250,000 is guaranteed.

Some ADIs operate multiple brands or may offer deposit accounts under more than one brand name. However, they are still part of the same ADI. The guarantee covers deposits per ADI, not per brand name. For example, if you have multiple deposit accounts with brands that are owned by the same ADI, the guarantee will only apply to $250,000 of these funds in total. If this concerns you, make sure you know who the ADI is that you bank with.

In the case of joint accounts, each account holder is entitled to an individual guarantee up to $250,000.

More in the link

https://www.moneysmart.gov.au/managing-your-money/banking

[fourandsixpants]

Thanks for these links and info am3.

But do you think there will be a run on our banks ?..........in the near future?

If not, why not please?

[fourandsixpants · Accepted solution]

History has shown that small depositors will queue to withdraw their money from a bank even when those deposits are fully guaranteed.

Murray tells banks to prepare for correction

 http://www.afr.com/p/national/murray_tells_banks_to_prepare_for_dqitGMktmZ1yDTs87035uO

....The potential for a fall in share and property prices would expose the Australian banks to big losses.....

[fourandsixpants · Accepted solution]

Could the federal government or the RBA really afford to bail out one of our major banks? How about all four? David argues that while US banks were ‘too big to fail’, Australian banks are ‘too big to save’......

Toxic lending and excessive risk-taking has fed through to Australian property prices. Australians pay a premium on housing simply because our banks need to lift their profitability year after year and don’t bear the full risk of their decision-making.....

“The Reserve Bank and our politicians have either been asleep at the wheel or they have been managing a bubble. Not an economy,”.......

http://www.businessspectator.com.au/article/2014/7/23/australian-news/three-forces-pushing-australia...

[icyfroth · Accepted solution]

Here's what the CEC have to say about Australia's financial state:

"If the FSI (Financial Service Inquiry) recommends Australia join the new international “bail-in” regime dedicated to ensuring the survival of too-big-to-fail banks ahead of all else—saving the mountain of worthless derivatives claims they hold, ahead of the people—the fist of monetarism will come crushing down."

“Competition” became the watch word of the Hawke-Keating-Howard-Costello economic reforms of the 1980s and 1990s,even entrenched in the law called National Competition Policy. But what seemed sound in theory, turned out to be a fraud in practice: in each sector of the Australian economy, competition policy reduced the number of competitors! Australia’s 200,000 family farmers collapsed to less than 40,000; the retail sector, including supermarkets, bottle shops, hardware stores, and petrol stations, was taken over by just two companies, Woolworths and Coles; and the banking system became concentrated in four mega-banks."

https://www.cecaust.com.au/members/ckfinder/userfiles/files/AASVol16No32&Almanac23_email.pdf

Like you, PS, I worry.

[2106greencat]

Well said Rabbit

[icyfroth]

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@2106greencat wrote:

Well said Rabbit

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what did she say?