Another day, another banking attack on democracy.
Valentines Day will go down as a dark day in Australian history.
It was the day that the banks overturned one of the few protections that depositors had.
Ask anyone how safe their money in the bank is. I'd say 80% wouldn't have a clue. The banks are big. The money must be safe.
Another 20% are probably aware that Australia has a federally-funded deposit guarantee scheme.
So if a banks goes broke, and you had money in the bank, then the government will give you your money back, up to $250,000.
It's called the Financial Claims Scheme, or FCS.
(Not to be confused with the government's current public relations program, ‘ffs'.)
So all good, right? Your money's safe.
Well, turns out, it's not so safe. It turns out the FCS is underfunded, and not actually much of a guarantee at all.
In 2011, the international Financial Stability Board based in Basel, Switzerland, found that Australia's FCS contained about $20 billion for each bank in Australia.
Sounds like a lot right. Well, actually, no so much. Each of the four majors, who account for over 80% of all deposits, they each have something north of $400 billion in deposits.
So if one of the big four went under, the chances that there'd be enough in the kitty to cover it are pretty small.
Especially when you remember how concentrated the Australian banking sector is. It's hard to see a situation where a major goes under without taking some of the regional banks with them.
So not a lot to inspire confidence there.
But that's ok, the government could just go into debt or print money to make sure it hit its FCS obligations, right?
Well, maybe, maybe not.
And this is what happened on Valentines day.
The government sprung a sneaky move on the Senate, ramming legislation through while just 7 senators (of 76!) were in the room to vote on it.
(I guess the others were taking their chief of staffs out for a candle-lit dinner).
It was the APRA crisis resolution bill.
What's in the bill?
Well, a bunch of stuff, but the most alarming was the removal of the guarantee bit from the deposits guarantee scheme.
At this point I have to introduce you to Dr Wilson Sy. He was formerly the Head of Research at APRA, so knows what he's talking about.
As he says, “the evidence collected here strongly suggests that the Bill is designed to confiscate bank deposits to ‘bail in' insolvent banks to save the financial system.”
There was key change to the APRA mandate. APRA is normally responsible for “protecting depositors AND ensuring the stability of the financial system.”
However, in the latest bill, APRA is allowed to make its decision in secret, if it is in “the interest of protecting depositors OR ensuring the stability of the financial system.”
See what they did there?
Now typically, protecting depositors is part and parcel of ensuring the stability of the financial system.
But in the middle of a crisis? When banks are going to the wall and the government is running out of money?
When it's facing the prospect of having to print billions and trash Australia's financial reputation?
It's not hard to imagine a scenario where protecting depositors is not the best way to ensure the stability of the financial system.
And since that decision will be made behind closed doors, it's also not hard to imagine a situation where government lackeys just decide to fleece donors and bail-out their banking mates, given the choice.
As Dr Sy points out, the new bill gives APRA and the government “discretion.”
But it's just not a guarantee if the body behind it has discretion.
It's like your insurer saying to you, yeah, your house and contents are totally insured… you know, unless something else comes up. Let's just see how it flows on the day.
And in the middle of a crisis, with a disaster to blame and their banking mates to protect, you can bet that the politicians will use their “discretion.”
And so that's what happened. On Valentine's Day, in the cold, heart of Canberra, the government quietly rushed through legislation designed to screw depositors over.
I know the banking sector gives us things to be angry about on a daily basis, but if you're looking for a good outlet for that anger, the Citizen's Electoral Council is running a strong campaign on it. Check it out.
And time to rethink our definition of ‘defensive' assets.