Banks urge plans to 'get off the guarantees drip'
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Australia's banks have raised concerns about the Federal Government's banks deposits scheme.
The Australian Bankers Association says the guarantee on deposits and wholesale funding must be reviewed as soon as financial markets stabilise.
It says some banks are worried the free deposits guarantee threshold of $1 million is set too high.
The association's chief executive, David Bell, says the expiry date for the guarantees should be clarified.
"The growing view is that when markets do stabilise - and hopefully that will be sooner rather than later - at that time there should be a serious review as to whether these guarantees remain in place going forward and if they do, to what extent they are in place," he said.
"We need to make sure that we understand how we get off the drip in years to come," he said.
"We don't want to have things in place which cause unnecessary market distortions.
"Having said that, there is broad acceptance of what has happened thus far, but yes there is a need to review [when] going forward."
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Comments (39)
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Porkman De Lardo:
21 Nov 2008 10:04:51am
I think the banks should give a guarantee that in future they will cease and desist from engaging in practices that I consider fiscal buccaneering which strongly contributed to this financial crisis....what a noive!
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Brad:
21 Nov 2008 11:01:17am
Porkman I don't think that you can blame the Australian Banks for the current crisis. They are strongly regulated by APRA and ASIC and have to comply with stringent regulatory guidelines (I work for a credit union and are bound by the same rules).
The fault lies with the American FIs and also the homeowner who seeks to borrow more than they can afford. What happens in Australia is similiar in that if you can't get a loan from a bank then you go to a broker who finds someone who will lend to you (at a higher interest rate of course).
People need to take responsibility for their own actions and stop blaming everyone else.Agree (0) Alert moderator
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ANTHONY:
21 Nov 2008 10:09:16am
Guaranteeing any financial institution by governments is open to rorting, as was seen in SA with the State Bank. Banks will take bigger risks, if the risky investment pays off they take the profits, if not, we pay the losses!
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BJ:
21 Nov 2008 10:34:20am
Anthony
Your synopsis of what happened in South Australia is simply not correct.
The whole notion of government guaranteed State Bank deposits wasn't mentioned nor heard of until the bank foundered.
Here's the moral hazard - if the State Government hadn't stepped in to assume the bad debts, there would have been massive losses by South Australians in terms of lost deposits and foreclosed mortgages and closed businesses.
That would have plunged South Australia into a dark depression lasting far longer than any person could contemplate and would have made the State a far bigger basket case than it already is.Agree (0) Alert moderator
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Richard:
21 Nov 2008 11:04:13am
Sorry, but you are wrong BJ!
State Bank (and before that, the Savings Bank of SA) deposits were guaranteed by the State Govt, and had been for years.
The State government didn't step in as such, it only did what it was legally required to do.
Interestingly at the time of the collapse, there were more than 20 State Bank executives who were on a higher salaray than the state Premier! I can't remember any of them accepting ANY responsibility for the bank's situation.Agree (0) Alert moderator
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ddur:
21 Nov 2008 11:17:14am
It cost South Australian tax payers $3billion!
The then premier who was also the treasurer walked away
unschathed never to be heard of again.
Consquently state taxes went thru the roof.
All thanks to deregulation.Agree (0) Alert moderator
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S-Man:
21 Nov 2008 11:40:36am
Hey! SA's not a basket case... Go SA!
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Clive:
21 Nov 2008 10:14:10am
I suspect they do not want govenment involved in their business as they may then presure the banks with regard to fees and interest rates
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Lindsay Cooper:
21 Nov 2008 10:14:44am
Hey there, this is what saved the four major banks so I don't think they should be complaining.
Yes, the expiry date and threshold should be very clear to everyone. The government needs to do this NOW and then leave it alone.
There are plenty of things in place causing unnecessary market distortions, what new.Agree (0) Alert moderator
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Brad:
21 Nov 2008 11:03:21am
The four major banks don't need saving.
They are four of about twenty AA rated banks in the world and have strong capital and liquidity.
They are not heavily exposed to the sub prime crisis and the only real impact has been an increase in the cost of funding which they have alleviated by increasing interest rates above the RBA's changes in the cash rate.Agree (0) Alert moderator
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Lindsay Cooper:
21 Nov 2008 11:31:36am
Brad: Do you know they are not exposed to the world crisis.??? They just haven't let anyone know yet and won't unless they are forced to.
If this guarantee was not in place they may have needed saving by now.Agree (0) Alert moderator
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chalkie:
21 Nov 2008 11:16:14am
Do the bankers fear that, as the govt has protected the banks' capital through this guarantee, that with a further downtuurn the govt might next move to protect the depositors at the expense of the owners - by nationalisation, caretaking and stripping the profit of a later float for their troubles, as Gordon Brown seems to have done in the UK?
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Pravda:
21 Nov 2008 10:15:59am
Dear David Bell of the Bankers Association
Its the banks (among othersin your industry) that got into this mess, and the Australian Government and tax payers are doing your a favour by propping your banks up with this guarantee, and quite frankly, you should be charged a hefty fee for this safety net.
Rather than complain, it would be lovely to hear from a few highly paid bankers around the world apologise for their incompetency over the last few years, hand back some of their cash and options they received for creating the disaster, and offer to work really, really hard to bring the world back from impending disaster.
We have a lot more imoportant things to deal with (like carbon change) and here we are having to sort out a mess created by overpaid, greedy financiers and their hangers on.Agree (1) Alert moderator
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Pravda:
21 Nov 2008 10:30:50am
Sorry, that should be "Climate Change", not "Carbon Change", but we should be doing that as well!
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Pen Pal:
21 Nov 2008 10:31:01am
You're listing a little too far to the left Pravda - a little more balast on the starboard side would help.
The guarantee (as I understand it) is only in relation to deposits in Australian Banks and I think the problem which the banks see is that if the guarantee stays in place too long, lending policies will be framed around that guarantee. I agree with the banks that would be a dangerous mind set to get into.
Once stability returns (or even beforehand if people are comfortable with the security of our banking system) the guarantee should first be reduced to a lesser figure than $1m and / or cancel the guarantee altogether.
That should happen sooner rather than later.Agree (0) Alert moderator
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Derridian:
21 Nov 2008 11:09:19am
Technical Analysts who adhere to market Chartism are likely to tell you that guarantees are absorbed into the risk model and merely elevate risk-taking over the long term. Pen Pal alludes to this tendency in his remarks, when he says that 'lending policies will be framed around that guarantee'. He says it's a dangerous mindset to get into, and I wholeheartedly agree. What is insightful is Pen Pal's observation that you can be conscious of such a behaviour, yet unable to suppress it! Amazing isn't it!
I think Pen Pal is probably right in asserting that this propensity is clearly observable in financial circles. How else do you explain the 'low doc', 'no doc' experiment that banks here and overseas dabbled in? Apparently such a ludicrously naive approach to finance is perfectly reasonable in an institutional setting, but if individuals were to mimic such behaviour, they would be judged to be irresponsible and, probably, insane! "No don't worry if you have no evidence to support your position, I'll merely assume the risk and dispense with it as soon as I can!" What???
Interestingly Governments are held to account in an entirely different way too... "No, you can't borrow! Well, yes, business does it all the time and, let's face it, we all have to obtain a mortgage to purchase a house... or do we run surpluses until we can afford the capital investment?" No, of course we don't! Borrowing is designed to leverage communal savings to allow for the cost of major capital investment... how else can it be achieved? Our fetish for budget surpluses is just that... a fetish!
If we can divorce all this from political ideology and populist rantings, a la Julie 'I've no idea what I just said' Bishop, we'll be fine!!!Agree (0) Alert moderator
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JC:
21 Nov 2008 10:33:06am
Gee Pravda, and all the while the Govt has been telling us we have had the best regulation and banking practices in the world, and that the world should adopt our system. Do you know something the govt doesnt? Also, I didnt realise we had a sub-prime "culture" within Australia.
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Pravda:
21 Nov 2008 11:18:30am
I think we do have some of the best regulation in the world, and we have had Governments (both Liberal and Labour) who have and are acting to insulate our economy from the worst of this recession.
If you read the financial press, you will see that Australian banks have taken hits as a result of their exposure to the sub prime crisis, but Australian prudential regulation has meant that they have not been able to act in the wild and crazy way that some international bank have.
No sub prime culture in Australia? Up to a year ago, I was seeing some mortgage brokers offering to lend 110 percent of the value of property. And what do you think all this "interest free for 24 months" stuff in the retail sector is all about? Its lending money to people who don't have the capacity to buy something outright or repay it.
It didn't get as bad as it did n the US, but we have had expose to the thinking behind it none the less.
Finally, as an ANZ shareholder, I have the paperwork for the AGM, where we shareholders are being asked to approve an increase in Directors fee from $2.5 million to $3 million, and a rights issue for the CEO of 700,000 shares, despite a 20 percent decline in profit for the year.
I'd say a little restraint from the banking sector is reasonable in the current climate.Agree (1) Alert moderator
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BJ:
21 Nov 2008 10:43:20am
Pravda
It's not the banks' fault. What a convenient industry to blame.
It's all of our fault as individuals and corporations.
It's our penchant and huge appetite for risk and unserviceable debt levels, based on ridiculous thoughts like capital appreciation rolling on forever.Agree (0) Alert moderator
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hugh jamptom:
21 Nov 2008 11:13:55am
It's not my fault - I didn't go into debt, I paid my mortgage off off. I even lent the banks some money.
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Brian:
21 Nov 2008 10:47:46am
I thought it was every one that got us into this mess because they borrowed more than they could afford. Particularly in the US but it is still the case in Australia.
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Derridian:
21 Nov 2008 11:18:18am
I'm sorry Brian, but I refuse to take responsibility for the avaricious actions of others! I didn't invest in high-return schemes... because there is no such thing! 'Some' people got way too greedy and the result is that the rest of us must pay for their incapacity to control their baser urges! Let's face it, we could all do with a little more, couldn't we? Some of us invest in vehicles that offer a 'reasonable' return without the imprudent and often scandalously high risk, attached to the 'high-return' offerings. We take a little longer to obtain an appreciable return, but we do not jeopardise the entire financial system and we do not knowingly pass on the results of our own rash idiocy to those who have acted responsibly. I do not feel like bailing out those who have benefitted from high returns year after year and laughed at my self imposed penury... I say... deal with the consequences of your own actions! Regrettably, I know that this isn't feasible, because it is the system that needs to be assured if I and you and all other rational, reasonable people are to be able to live in comparative comfort!!!!
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Derridian:
21 Nov 2008 10:52:51am
I quite agree Pravda... It is extraordinary to witness the deafening silence from those who actually perpetrated the madness that resulted in this catastrophy! Imagine if a publicly elected official had been responsible... the public would be baying for blood! There would be calls for an urgent Royal Commission with sweeping investigative powers... Admittedly a considerable proportion of the problem results from the actions of overseas corporations and multi-national institutions, but that's not to say that incompetent and risky decisions weren't taken domestically. Take ABC Childcare and the debt exposure that Macquarie and other merchant financiers indulged in... ludicrous!
What the banks aren't admitting is that they know that deposit guarantees are essentially propping up their dubious market behaviours but they also know that mandatory salary deposit ensures a steady flow of capital into their coffers. In essence they have a constant stream of base capital and the guarantee only shores up what is placed in accounts every day of every week of every year! Our system is distorted already, and they are well aware of it. The only thing they're grumbling about are measures that may, in the end, reduce their profit margins! When is someone actually going to tell them to shut-up and act in the broader public interest instead of narrowly concerning themselves with investor welfare? It's about time it happened... NOW!Agree (0) Alert moderator
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Brad:
21 Nov 2008 11:06:13am
Pravda stop watching Today Tonight and do some research. Australian banks are posting solid profits, which is what is required to remain stable.
They have been caught up in the contagion of the GLOBAL financial crisis, which has tarnished all banks with the same negative brush. They didn't need the bank deposit guarantee to ensure that the average Joe didn't loose his savings, the only benefit has been to make their cost of funding lower because international banks now have a governement guarantee on deposits and thus they can obtain funding from overseas institutions at AAA rates (even though they are already rated that high).Agree (0) Alert moderator
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Pravda:
21 Nov 2008 11:38:49am
Thanks Brad, I don't watch Today Tonight.
I agree that Australian banks don't "need" the guarantee, but they are not only happy to take it, but most have factored it into their marketing, so that I am getting letters telling to me to move my money from dodgy places into their bank BECAUSE it is guaranteed by the Government!
Like banks, Governments are not charities either and they don't need to offer something as valuable as a guarantee for no return. If a bank doesn't want the guarantee, I am sure they can decline it.Agree (0) Alert moderator
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Leon:
21 Nov 2008 10:17:04am
"there is broad acceptance of what has happened thus far, but yes there is a need to review [when] going forward."
Obviously it will be reviewd when going forward, the government has already made this clear. Which makes this quite an unremarkable topic.Agree (0) Alert moderator
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Pete:
21 Nov 2008 10:17:08am
Boo hoo, those poor banks with their record profits disappearing.
Solution? Don't gamble with our savings.
If you banks *are* going to lose my money, I might as well keep in under the bed and take it out once a month to punt on a horse to allow for inflation. Less risk!Agree (0) Alert moderator
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BJ:
21 Nov 2008 10:37:12am
Pete
A business is expected to undertake some risks in order to make a profit. The ultimate risk-free strategy is to do nothing and therein lies the rub - without risks there'd be no banks.
Banks aren't charities. Let's move beyond this simple mindset.
Banks, rightly, answer to their shareholders.Agree (0) Alert moderator
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Derridian:
21 Nov 2008 11:27:08am
The single minded pursuit of shareholder profit is anathema to the conduct of a civilised society! Banks, like all other institutions in society must assume a level of social responsibility. Abrogation of that primary responsibility should require that they be liquidated and replaced immediately... There are plenty of ethical players in the market who will take up the mantle and assume considered, prudent risk and not merely respond to the unbounded greed of shareholders!
Futher to this, it is ludicrous to assert that anyone seriously believes banks to be, as you label it, 'charities'. That doesn't mean that they, as legal entities, can ignore their responsibilities in society. Depositors have a right to know that their funds are safe, within the bounds of commercial reality and prudent stewardship. A guarantee is required because confidence in that matrix of responsibility has been dangerously erroded.
Yes... let banks and other financial entities assume balanced and carefully considered risks... but balance that with the legitimate need in society for some measure of certainty and amenity!Agree (0) Alert moderator
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Porkman De Lardo:
21 Nov 2008 11:41:19am
Very easy to accuse Pravda and others as having a "simple mindset" - all you apologists for the International ( and National) Greedy Bastards Club must think these banks actually care about the ordinary punter - I think it is you who are living in a fantasy, and not Pravda.
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Doh:
21 Nov 2008 10:22:39am
Market distortions eh?
If the interest rates are equal, where do you put your money when one institution has a government guarantee and the other doesn't? In the one with the guarantee obviously. The banks wouldn't be complaining about that.
If two institutions are government guaranteed, do you choose the one with the lower interest rate or the higher interest rate? The banks might be complaining about that.
The guarantee provides a level playing field. The banks might be complaining about that.
Competition? We can't have that said which bank? Every bank!Agree (1) Alert moderator
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BJ:
21 Nov 2008 10:39:42am
Doh
Give it a rest. Banks are responsible to their shareholders, no more, no less. Quite as it should be, lest there be no banks.
They are not charities.Agree (0) Alert moderator
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Derridian:
21 Nov 2008 11:31:08am
So BJ, should we stop protecting their nicely defined domestic market and let the really big boys in to take care of their shareholders? Can you imagine a genuinely competitive domestic banking market without the restrictions on takeovers and true competition from international players... No they wouldn't be charities anymore BJ... they'd be a stain on the pavement! Stop being disingenuous and patently absurd.. the banks and their protectionist behaviours have had sway for years... consumers, who ultimately put dividends in the pockets of shareholders... deserve some protection too! Fail to offer the average citizen protection of some description and your precious shareholder revenues will disappear along with the capital the average Aussie provides to enable those profits!
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Doh:
21 Nov 2008 11:34:25am
Have you ever heard of the concept of corporate social responsibility? It is a quaint concept, but one worthy of consideration. Without the community the corporation does not exist!
The point, however, is that the banks don't like the breadth of the guarantee because they know it will cause a movement of funds away from the big 4 toward credit unions and the like.
The hypocracy of complaining about market distortions caused by a level playing field is breathtaking.Agree (0) Alert moderator
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Cam:
21 Nov 2008 10:34:12am
If the guarantee is removed I will move my money to other "safe haveans". The only booming market now is in home safes.
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Brad:
21 Nov 2008 11:11:31am
Cam you are being paranoid.
The big four banks will not fall over, they have plenty of capital they are AA rated (the highest rating and four of only 20 with that rating around the world).
Put your money in a safe, receive -5% interest (due to inflation) and have fun carrying around cash instead of being able to access it electronically. The banks are paying about 10% dividend fully franked at the moment so I would look there for a wiser investment.
Right now fear is ruling the sentiment of the world. Things are not that bad in Australia with 4.3% unemployment and China continuing to grow at 9%. Just becasue the cycle of debt fueled growth has ended (for the time being) means the markets are just correcting themselves.Agree (0) Alert moderator
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Doh:
21 Nov 2008 11:38:58am
Too big to fail?
Anybody who ignores risk will sooner or later pay the price.Agree (0) Alert moderator
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Robert:
21 Nov 2008 10:47:59am
What??
The Australian Bankers Association is concerned about "unnecessary market distortions"?
That has to be the hypocrisy of the century!
And while the government is reviewing its policy about guarantees I earnestly hope the government is also speedily putting together its new legislation to free up the banking market and allow people to move from bank to bank without penalty. Another unnecessary market distortion!
Oh yes, and how about a bare bones, fee free, bank service from Australia Post and the government for the pensioners. Let's get the pensioners free from these bloodsuckers who fee and fine the most needy members of our community. C'mon Kevin and Wayne, let's get some REAL competition going!!Agree (0) Alert moderator
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Brad:
21 Nov 2008 11:17:03am
Robert do you think that it is free to provide all of the infrastructure that banks have to enable you to access your money anytime, anywhere in the world? ATMs, Internet Banking, EFTPOS, Telephone Banking, Moblie Banking, Branches etc?
Australia Post charges through the nose to facilitate a transaction for another financial institution (charges the FI $2.50 for an over the counter withdrawal).
If you are willing to pay $7+ for parking for a day then get used to paying for an institution to secure your money and provide you with suitable access to those funds.
Banks are not a charity, if you don't like them then withdrawal all your money and stick it under your bed at home. Just hope you are paying for insurance too.Agree (0) Alert moderator
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