Government Bank Guarantee

Discussion in 'Money Management & Banking' started by Willy, 12th Mar, 2020.

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  1. Willy

    Willy Well-Known Member

    12th Sep, 2017
    Hi All,

    Wondering if someone is able to enlighten me about the government bank guarantee.

    From my understanding the government guarantees deposits up to $250,000 per person per institution.
    Assuming I've got that right I have a couple of questions-

    1. So if a couple have accounts in joint names deposits would be guaranteed up to $500,000 at the one institution. Is that correct?

    2.Ignoring the govt guarantee for a moment, if you have a loan of $600,000 and have $600,000 in deposits offsetting that loan, what happens if the bank collapses?
    You lose your $600,000 deposits but are you still liable for repayment of the loan or do they cancel each other out?


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  2. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

    18th Jun, 2015
    An offset is a deposit account (linked to a loan) and only $250k per person may be protected in a joint offset. APRA confirm a offset account is affected and protected by this scheme and that implies that some of the deposit is lost. In a practical sense nobody has ever or is likely to ever see a ADI collapse without some assets. A full and complete loss seems unusual. Generally the acts of a liquidator always consider things like this. A liquidator may look at offset loans and may apply the offset to clear or reduce the loan. Or may not. Disputes about secured v unsecured parties always occur with collapses. In the ANZ linked Opes Prime scandal the liquidator closed out portfolio's and applied deposits to margins etc and some sued arguing they wanted their deposits repaid instead. The liquidator did not agree as the depoits were not preferential or secured. And a broker account was not covered by the deposit scheme. Commsec for example dont hold accounts but clear to CBA depoist accounts by default.

    Borrowers may also find redraw balances and undrawn limits will be zero'd out.

    In the event of collapse it is likely a lenders loan book would be acquired by another entity.

    Joint accounts are dealt with as follows :

    The FCS limit of $250,000 is applied to the combined amount of deposits for each account holder at each banking institution. For joint accounts, deposits are shared equally between the various account holders, where individual account holders can be identified. As such, each account holder's equal share of any joint account will need to be added to any other eligible deposits they may hold under their name at the same banking institution.

    Case study
    Alex and Peter have $300,000 in a joint account with a credit union. Alex also has another account with the same credit union in his own name that has $50,000, but Peter does not have another account. The FCS protects a total amount of deposits up to $250,000 for each account holder for each bank, building society and credit union. Therefore, Peter is covered under the FCS for $150,000 (half the joint account) while Alex is covered for $200,000 (being the sum of $150,000 from the joint account in addition to the $50,000 from his individual account).
    Last edited: 13th Mar, 2020
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