if hbos fails will that effect bankwest guys, page-2

Is your bank deposit safe? No - but it could be
James Kirby
March 30, 2008



YOU just know when you see politicians berating a public servant for doing his job it's worth a second look.

Reserve Bank governor Glenn Stevens got a taste of what's known in footy circles as "tunnelling" (ask St Kilda's Nick Riewoldt) when he found himself blasted by Opposition Leader Brendan Nelson in recent days. Stevens had the temerity to suggest our banks operate in a free market.

Asked to comment on rising interest rates, Stevens suggested higher rates - even rates that were higher than RBA guidance - were "realistic". And before Treasurer Wayne Swan, who's been haranguing the big bad banks for weeks could say a word, Nelson said Stevens was "bordering on insensitive" making comments that were "not what Australians need to hear".

Well, what do Australians need to hear? There's no credit crisis. Would that suit? How about the banking sector is a rose garden where the sun always shines. Cut it out chaps. Banks and their customers deserve better. I don't remember any politician complaining when banks were cutting rates beyond the RBA guidance only a few years ago.

While both parties paint the banks as salivating wolves, the truth is that more people than ever trust Australian banks as the best place to put their money.

Yet for all the point-scoring in Canberra nobody seems to be paying attention to an RBA-backed proposal to protect bank customers.

The Council of Financial Regulators - an important group chaired by the RBA - has recently dusted off its proposal that the Government should consider explicitly protecting bank customers. In brief, the proposal suggests that the first $20,000 in any bank account would be directly guaranteed by the Federal Government. This idea might come as a surprise to many people who think bank savings are guaranteed already. Well, folks, they are not. There is no guarantee for bank funds. There is admittedly an implicit guarantee in the accumulated habits of the past century where no government has allowed a bank to fail. But is that good enough?

We're back in an era of bank collapses. In Britain the collapse of Northern Rock was the first bank failure in a century. Likewise in the US, the collapse and government-enabled rescue of investment bank Bear Stearns by JPMorgan is the biggest banking crisis in more than a decade.

Now it's worth noting that while banks are getting into trouble all around the world, Australians are rushing back into the banks with their money.

The RBA last week released its Financial Stability Review. Buried in the back pages of that report was news that household deposits - that is, bank deposits from me and you - are rising at their fastest rate for several years.

In the six months to January household bank deposits grew by an annualised rate of 20%. Now, remember that the six months to January were not that bad. It's in the three months since January that the climate of global markets has rapidly deteriorated. Our own stockmarket is down almost 20% since the start of the year. As banks regain their place at the heart of the financial system there is emerging evidence that non-bank rivals will find it very hard going in the near future. The share of the lending market held by non-banks, such as RAMS, in the past six months fell by a stunning 50% from 12% to 6%.

What's more, the RBA confirms that the rush back to the bank savings accounts will accelerate in the months ahead. As successive waves of financial crisis wash across the market - Allco, Centro, MFS are now set to be joined by the broking house Opes Prime which could be facing losses of up to $1 billion - there is still no guarantee bank accounts are safe. But they could be. If everyone could know that at least the first $20,000 they had in the bank was secure I think that might be something Australians would need to hear.

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You can bank on it

â- Politicians have been attacking the Reserve Bank on higher rates.

â- At the same time Australians have been returning to bank savings accounts.

â- Bank deposits are growing at the fastest rate for years.

â- The RBA has backed a plan to guarantee bank savings.