All of that is correct however I was referring to the limit that...

All of that is correct however I was referring to the limit that the gov will pay out per institution, not their customers. So for example lets say NAB goes bust. NAB will have a hard limit of funds that they will receive through the scheme.

This limit would not even be close to being able to cover all their customers. A lot of people throw the guarantee around thinking their 250k per bank is air tight, not the case. I know people who didn't realise a bank and its subsidiary would be classified as the SAME institution.I don't believe it will ever be used however, as you said the bank has to let itself fail first and if things went really pear shaped I believe bail ins, where your deposit gets transformed into largely devalued shares would occur. OR if it was a smaller bank the gov would funnel some money to a larger one to swallow them up.

Most people think people who take a quick look at the fine print (you and I) are just negative doomers. It might not be possible to avoid a wipeout if one comes, but at least you wont be blindsided by it.

All the best.