The Australian Banking Association decided to attack or I guess counter-attack the Opposition (specifically, Joe Hockey today). Here is their statement. The bit that caught my attention was this:
Mr Münchenberg said: “Many of Mr Hockey’s claims are based on an assertion that taxpayers’ money is at risk, therefore Governments should have greater control over banks. But taxpayers’ money is not at risk.”
“Under the deposit guarantee, in the unlikely event that one of Australia’s heavily regulated, closely supervised banks, credit unions or building societies collapses, no depositor or taxpayer will be left out of pocket, because the rest of the industry will be levied to cover any shortfall.
“Far from being underwritten by taxpayers, it is the industry itself that underwrites the deposit guarantee. A Shadow Treasurer should be aware of that simple fact.
Except it isn’t a simple fact. If you look at the current government policy, it is true that we have a limited deposit guarantee for accounts under $1 million. But anyone with a sense of economics and government commitment knows that we have a much broader guarantee — like 2008, if another crisis occurred, we know that the government will guarantee all deposits in a widespread manner. That is the real guarantee as opposed to the formal one on the books. That is what Hockey and a host of economists are worried about.
The point is that we need to recognise that fact of life and, like everywhere else in the world, get the protected institutions to pay premiums on that and also to ensure that risk is managed so that there won’t be taxpayer claims.
Now if Mr Münchenberg would like to get his members to sign a pledge stating they will never accept government money and will fail if they get in trouble, I’d be interested to see it. But I think when push comes to shove it will be meaningless. Nonetheless, I am happy to be humoured.
Also, if the banks have agreed amongst themselves to bail each other out for losses that are not covered by the formal guarantee, I would love to hear about that too.