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Are offset acc safe from bail-in ?

Discussion in 'Property Market Economics' started by Deck, 25th Mar, 2016.

  1. Deck

    Deck Member

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    Hi guys,

    sorry if that has been already answered.

    in case of banks troubles, how safe is cash on offset, few $100k.Can it be used to bailed the banks ?

    Thank you
    D
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    I'd be worried if we didn't have the strongest banking system and rigid prudental controls.
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It would be unusual for someone to be defaulting on a loan while having money in an offset, but if they did the money would not be safe because you are likely to have contracted with the bank so that they can take that money.

    If it was another bank you default with they could not get at that money immediately, but could after getting a judgment against you.
     
  4. Deck

    Deck Member

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    my question is not about me defaulting, it s about this new regulation that allows banks to use deposit to save themselves out of trouble.
    It s unlikely to happen but we never know as CBA/Mac have already been pointed out for having some crappy bad loans (mining related) on the book, and crappy derivatives not marked to market.

    I know the gov is supposed to garantee it up to 250k, what about above 250k in a offset account ?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I am not sure, but would think the guarantee applies to offset accounts.

    I am not aware of this new legislation either.
     
  6. Befuddled

    Befuddled Well-Known Member

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    This link seems to suggest offset accounts are covered

    Banking | ASIC's MoneySmart

    It also answers the OPs earlier questions. Best to just read the whole section on "government guarantee on deposits"
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    According to APRA (linked on Befuddled's ASIC link) offset accounts of APRA regulated banks are covered
    Pages - Financial Claims Scheme for banks, building societies and credit unions

    But not if they are with
    "finance companies and other institutions that are not authorised by APRA."

    It would be unusual for mortgage managers to offer offset accounts. e.g. Firstmac. You then have to ask if these are regulated by APRA (I don't know the answer).
     
  8. bumskins

    bumskins Well-Known Member

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    If a financial institution got into that situation I would fully expect them to take your offset funds and pay them into your mortgage. I don't think this would be challenged.

    Just think about it, when its the difference between survival or going under. The financial institution is going to use everything at their disposal and the government likewise is likely to back those actions.

    Doing this will make it easier for them to rollover their debt.

    I believe this would always be a risk holding debt & deposits with the same institution.
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    According to the Firstmac website they are covered:

    Which Firstmac accounts does the guarantee apply to?
    The Firstmac deposit products are covered by the Australian Government guarantee. The Australian Government automatically guarantees deposits which are placed with an Authorised Deposit-taking Institution (ADI), up to the balance of $250,000. Firstmac deposits are issued by Goldfields Money Limited, a registered ADI under the Financial Claims Scheme. The sum of all balances held by you in Firstmac and Goldfields Money deposit accounts are covered by the Australian Government guarantee, up to the balance of $250,000.
    Term deposits
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't know if they would have the power to do this if you the mortgagor is not in default.
     
  11. bumskins

    bumskins Well-Known Member

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    Not a problem, click of a pen. You do understand what the bail-in laws have been designed for? Financial Stability, much of these rules are actually likely to be written & changed on the run in a financial crisis.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You can only speculate on that.
     
  13. bumskins

    bumskins Well-Known Member

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    If its a smaller financial institution I'd agree, your probably more likely to be ok. If its one of the big 4 it won't be pretty.
     
  14. dabbler

    dabbler Well-Known Member

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    You have to check to see if the govt guarantee applies to th e place you have your offset, I know one of mine is not covered.

    I think all of them can apply the cash in offset to the loan in certain circumstances, this may be fair game in any sort of crisis, who knows.
     
  15. dabbler

    dabbler Well-Known Member

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    Firstmac offsets are not considered "accounts", so not covered by govt guarantee is my understanding.
     
  16. barnes

    barnes Well-Known Member

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    Interesting, but according to this information a foreign currency account in an Australian financial institution is not covered by the government, because this account is not denominated in AUD.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Firstmac say their 'deposit products' are covered. You then have to work out if the offset account is a deposit product. It is probably just a redraw dressed up as an offset.
     
  18. Bullion Baron

    Bullion Baron Well-Known Member

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    This thread prompted some reading as I remembered bail-in legislation being a topic I covered on my blog a couple of years ago. Here are a couple of interesting articles I found:

    http://www.cecaust.com.au/bail-in/A...ia-already-under-effective-bail-in-regime.pdf

    Ensuring the major banks are not too big to fail

    http://www.apra.gov.au/Submissions/Documents/140829-APRA-FSI-Response.pdf

    Agree with @bumskins that if a crisis of such significance developed you could not rely on a common understanding of the rules, they may change the rules or just find a loophole to do what they need to.

    If offset accounts are covered by the guarantee (a guarantee whose provisions are questionable, see the limits compared with depositor size in first link), then you'd have to expect they will be treated the same as any other deposit if funds were bailed in.

    I don't think events like this would occur without substantial forewarning though.
     
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  19. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Not related directly to question but how about transferring the unused equity to unused debt ?
     
  20. Aaron Sice

    Aaron Sice Well-Known Member

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    "All Monies" clause.

    Your offset account is fair game in any bail in (or bail out of the debtor).