Bank Bail-in Laws & Bank Runs

Wasn't sure where to post this one.

Rather alarmingly, back in Feb 2018 and with strangely little to zero media fanfare, new legislation was quietly ushered in, that is quite alarming:

Senate Passes ‘Bail In’ Law – How Safe Is Your Cash Now?

Effectively, banks are able to do a bail-in (read: accessing customer's savings in the event they fall short on funding).

Previously, in such an event, the federal government's consumer protection backup - the government guarantee - would kick in, meaning that all depositers bank accounts across all deposit-taking institutions would be guaranteed up until $250,000 per account. So even if an individual had say $200k in three banks' savings accounts ($600k total), every $ of that would be guaranteed.

But the legislation change in Feb 2018, if I'm to understand it correctly, limits the total amount of goverment guarantees to a measly $20bn ONLY, PER-DEPOSIT TAKING INSTITUTION, as a maximum the gov will guarantee to consumers, in such an event (a bank going belly up)!! That is scary stuff when compounded with the reality of how about 90% of all Aussie deposits are held in about only 10% diversity of all Australian deposit-taking institutions!

Lets do some math.. say a big 4 bank like CBA that has a fat wad of consumer savings in it, goes belly up. $20bn / $250k (as a maximun payout/guarantee) = ONLY 80,000 unique savings accounts (customers) that are $250k+ in size, being bailed out by the government for that first $250k of their savings balance! I'd wager that a bank like CBA, what with their 4million+ customers, would have a LOT more than 80,000 customers with $250,000+ held in savings and/or offset accounts!

This means that in such an event it'd be like musical chairs as to whom gets a guarantee paid out, and who does not... frightening!

Couple this with Aus being on a fast track to a near-cashless future (note, ALL big 4 banks have come out in recent times proclaiming they will be removing HALF their atms around the country in coming years). They are clearly doing this to make sure they have less ATM-runs (a la Greece style) in such an event. Makes me wonder... would ppl just forget the ATMs and flock to WW and Coles in such an event? (where you can withdraw i think $400 per day over the counter from your savings account).

Really frightening stuff and really annoying that the MSM never reported much on this back in Feb.

I'd wager that a decent % of the 20,000+ PropertyChat users have rather chunky offset accounts full to the brim in such institutions...

 

Ps this Reddit thread probes a lot more than I have, and is worth a read:

bail in questions : AusFinance

 

I suggest you all read up about the Cyprus banking crisis, and bail in.

As you correctly observed it was sneaked in here under the radar.

If a crash happens here, there will be no federal reserve rescue for Aussie banks from America ( as there was 2008, though never admitted at the time). With the governments war chest already blown, I predict if things get serious enough, it's 'tits up'