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Bank Guarantee Raises Serious Questions

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In a recent Senate hearing, I questioned the government on its decision to include a standing appropriation—an open-ended budget allocation—in its Pacific Banking Guarantee legislation. This approach bypasses the annual appropriation process, removing Senate oversight and public transparency.

The Pacific Banking Guarantee is a scheme whereby the Federal Government guarantees the operation of banks across the Pacific. If these banks encounter financial difficulties, the Federal Government will bail them out. Why this is the business of the Australian Government escapes me. Why banks such as the Commonwealth and ANZ require a Federal Government guarantee, despite earning profits exceeding $15 billion annually, is a question they refused to answer. The Guarantee itself is worth no more than $2 billion—even in the unlikely event of a total loss. This Guarantee has been provided to give the Big Four banks a competitive advantage over other banks and financial institutions. With this Guarantee, they can borrow money at lower rates, thereby increasing their profits and creating an “I owe you one” sense of obligation to the Federal Government. I assume Minister Bowen intends to leverage this influence to “encourage” investment in wind and solar energy, despite the questionable economic viability of such ventures.

This is how government operates: influence-trading using taxpayers’ money.

Standing allocations cannot be questioned, and the only way to halt this flow of money to our major banks is through legislation that overturns the allocation. Given that the Greens have supported big banking in this country throughout the Albanese Government’s term – alongside the Government itself – any effort to restore accountability to the Pacific (big) Banking Guarantee is going to fail.

This reflects the contempt of the Albanese Government. The ALP is proving to be even bigger corporate lapdogs than the Liberals were.

Transcript

Senator ROBERTS: The Standing Committee for the Scrutiny of Bills requested a justification for why this bill includes a standing appropriation rather than being included in the annual appropriation bill, which would give the Senate oversight. Please explain why a standing appropriation is required. 

Senator CHISHOLM: Thanks, Senator Roberts, for the question. A special appropriation is more suitable for meeting possible liabilities than annual appropriations. While the likelihood the Commonwealth will need to make a payment is very low, we may be urgently required at any time to meet liabilities arising under a guarantee, which may fall outside the usual budget cycle. This means the annual appropriation process may not be available within the timeframe any liability falls due.  

Without a special appropriation, it is possible parliament will be recalled to pass an urgent appropriation or the Commonwealth can risk defaulting on its liabilities. The special appropriation is not proposed to have a direct dollar limit, as this provides the Commonwealth with flexibility to ensure it achieves a significant national interest objective, securing an Australian banking presence in the Pacific over the long term.  

The Commonwealth would not provide an unlimited guarantee, however there may be circumstances where the maximum amount guaranteed under the appropriation could change. This includes if the Commonwealth entered into a new agreement with another Australian bank and the legislation limits on the types of guarantees the government can provide to guarantees—only from an ADI banking business in the Pacific region. Specifically, the legislation limits the guarantee to only the ADI’s Pacific operations. 

Senator ROBERTS: So it’s an open-ended budget allocation. The guarantees being provided by this government are commercial-in-confidence. This means the Senate will not have oversight on what the government is agreeing to. Is that correct? 

Senator CHISHOLM: In terms of reporting obligations, any Pacific banking guarantee, including the ANZ agreement, will contain mechanisms to ensure a bank’s compliance with its obligations. This includes regular reporting on the total amount of guaranteed liabilities and the compliance with bank commitments as well. 

Senator ROBERTS: The duration of the ANZ guarantee is 10 years, meaning this government is binding future governments. Can the federal government withdraw from a guarantee at any time in those 10 years? If so, is there any sunset clause or time limit to the guarantees? 

Senator CHISHOLM: It’s a commercial agreement that’s been entered into with the Commonwealth. There is no sunsetting clause. 

Senator ROBERTS: I am told the World Bank is also working on a plan to assist correspondent banking intermediaries in the Pacific. Why didn’t you join that international effort, and will you use what they come up with as a way of sunsetting this arrangement? 

Senator CHISHOLM: Any Pacific banking guarantee is expected to complement the World Bank’s Pacific Strengthening Correspondent Banking Relationships Project, the CBR project. The government strongly supports the World Bank’s work on this in terms of the work they are doing in the Pacific. 

Senator ROBERTS: If you have strong confidence in the World Bank, why not let the World Bank do it? 

Senator CHISHOLM: Phase 1 of the World Bank project will establish a correspondent banking relationship provider of last resorts, which countries can call upon should they lose their financial correspondent banking relationship in a particular currency. It is intended to be a fallback for when there is no other commercially viable option. 

Senator ROBERTS: This bill does not specify what is being guaranteed, so let me ask. Does the guarantee extend to the Australian government guaranteeing loans by Australian banks to the governments of Pacific nations? 

Senator AYRES: Senator Roberts, we’ve just had a small changeover. I’m just trying to ensure that I can give you accurate information. The Commonwealth provides a limited guarantee to ANZ, under this legislation, in connection with banking operations in nine markets across the Pacific and Timor-Leste.  

Those markets are Cook Islands, Fiji, Kiribati, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga and Vanuatu. The guarantee only covers certain eligible liabilities, and it is only triggered if certain trigger events occur and result in a loss to ANZ. The Commonwealth has only provided the guarantee for certain eligible liabilities in order to minimise the risks and potential costs of any Pacific banking guarantee to the Commonwealth and to mitigate any potential competition or market distortion risks in Pacific financial markets and the Pacific banking sector.  

To preserve the non-distortionary mechanisms in the guarantee, the government will not be disclosing the specific terms of the guarantee, including the types of exposures that are covered. If it assists Senator Roberts, the government was, of course, provided with extensive commercial advice on the guarantee, including around the risks, and commercial risk assessments found the likelihood of a default to be very low. 

Senator ROBERTS: I appreciate your statement that you’d like to give me accurate information, but you didn’t answer the question. I take it that you can’t answer the question of whether or not the Australian government is guaranteeing loans by Australian banks to the governments of Pacific nations. 

Senator AYRES: I’ll try and answer a little bit more directly, if it assists. The reason that I answer it in the way that I do, Senator Roberts, is that the advice that is provided and the terms of the guarantee are, of course, commercial in confidence, for policy reasons, in particular so that they don’t distort the banking and financial services markets in the Pacific. I’ll get the team behind me to correct me if I answer this incorrectly.  

The question about the support that the Australian government provides to Pacific island countries is quite different to this set of arrangements, which is about ensuring that banking services are provided and that there is trade, the free movements of goods, investment and all of the things that go with having banking services provided with the facilitation and support of the Australian government. I hope that assists; I’m not sure that it will. If you’ve got further questions, I’ll endeavour to answer them. 

Senator ROBERTS: It doesn’t answer the question, but I’ll come back to it later. Minister, Australian banks like the ANZ raise money to lend in the market, issuing bonds and debt securities. If the intended use of that capital is to issue government-guaranteed loans to Pacific nations, which this bill would allow, does that not give banks like the ANZ a competitive advantage in the capital market? And is any oversight intended of the capital raising of Australian banks to make sure they are honest in their representations to the capital market? 

Senator AYRES: Any banking guarantee in the Pacific, including this agreement, will contain mechanisms to ensure a bank’s compliance with its obligations, which include regular reporting on the total amount of guaranteed liabilities, and to ensure compliance with bank commitments. There are measures undertaken in order to deal with that concern, which is at present, I would argue, theoretical.  

I hope that the financial markets in this area lift to a point that is consistent with the kind of development, growth, investment and trade that the Australian government is working with our Pacific partners to facilitate. That is in their interest and in our interest for that to occur. The kinds of measures that you’re talking about—I’ll put that backwards—do not have a distortionary effect on capital markets or on financial markets.  

There is extensive work that sits behind this that has been directed towards achieving that outcome. ANZ has made a number of commitments to its Pacific operations in the Cook Islands, Fiji, Kiribati, Papua New Guinea, Timor-Leste, Tonga, Samoa, the Solomon Islands and Vanuatu in exchange for this guarantee that includes maintaining face-to-face banking services and enhancing the ANZ Bank’s services, including digital services. That is important for people and businesses and economic growth and investment in each of those states.  

It supports ongoing access to correspondent banking services in the Pacific and international money transfers, including the Australian dollar but also the New Zealand dollar and the US dollar. It will also maintain fee-free remittances for ANZ customers. That is important for facilitating more trade and more transactions. It will involve investing an additional $50 million to enhance the ANZ’s digital banking offering in the Pacific, excluding in Papua New Guinea, again, mobilised by some of the issues about making sure that the effect here is to support providing banking services where they are at risk.  

The uplift that is engaged there will impact the ANZ’s retail banking operations everywhere, except for Papua New Guinea, where ANZ today currently only offers institutional banking services that play an important role for the mining sector and other parts of the Papua New Guinea economy. Alongside this, there are efforts to continue to support and promote financial inclusion and literacy, and ANZ will continue to support Pacific countries in terms of their infrastructure financing, in line with the bank’s credit risk policies.  

That is the nature of the impact of the guarantee, in terms of capital markets. It should not be conflated, of course, with the efforts that the Australian government engages in through EFA and various efforts to support infrastructure development and economic development more broadly in the Pacific. This is about supporting the banking infrastructure—maybe I shouldn’t say ‘infrastructure’, because it’s confusing—the banking retail network and digital services that sit alongside that throughout the Pacific states.  

Senator ROBERTS: I noticed that, in starting that answer, you used the words, ‘I hope that the financial markets lift’—I hope—to the trade, yet, in Australia, we had severe breaches of the law by senior banking and financial institution officials and no-one went to jail—no-one! You also said that you’d like to maintain face-to-face banking services in the Pacific islands, yet we can’t get that here in Australia. Minister, is this bill just putting more money in the pockets of the big four banks by lowering their borrowing costs relative to other banks? 

Senator AYRES: The short answer to that question, Senator Roberts, is no. It does not achieve that objective in any practical way. It’s not one of the principles that’s engaged here. Australia does have a very well-regulated banking sector, and that is a national asset for Australia. That is important for our capacity to deliver investment and growth and financial transactions and security for borrowers and lenders and projects.  

In times of financial stress, our well-regulated banking sector is a fundamental part of Australia’s economic resilience in what is a pretty challenging world that we live in. That is not related to what is being provided for here. There will always be, as you’ve alluded to, bad actors, bad things happening, malfeasance, errors, omissions or whatever in any system. I have no argument with that. That is what the regulatory sector is designed to deal with. This situation is about extending banking services that might not otherwise be extended to a part of the world that needs banking services, and it is in Australia’s interest for those to be provided.  

This ensures that, through arrangements supported by this legislation and also by the commercial and non-distortionary measures, it’s provided in a way in which there is no disadvantage to the Australian banking sector—and, when I say ‘banking sector’, what I mean is the kind of services that customers and businesses would need and expect from the Australian banking sector. Quite the contrary to the final suggestion in your question, this is not a matter of the government paying an amount to the ANZ; in fact, it’s quite the reverse.  

The ANZ pays an annual fee with respect to the guarantee, and the Department of Finance and the Commonwealth’s commercial advisor have provided advice on the annual fee. That fee amount, for some of the reasons that you’ve alluded to in some of your previous questions and in order to ensure that it doesn’t have a distortionary effect, is commercial in confidence and cannot be disclosed publicly. The guarantee isn’t a subsidy. It’s not a bailout. The government will not be providing any direct funding to Australian banks for their Pacific operations. 

Senator ROBERTS: That sounds like a protection fee. Let’s get this straight. Banks have no risk—they have a guarantee if they have any losses—so banks cannot lose, so that sounds like a protection fee. Minister, who drafted your bill for you? The banks? 

Senator AYRES: Certainly not. That is certainly not the case. This bill is drafted, this arrangement has been struck, in order to support regional communities in Australia and Pacific nations to access banking services. That is in Australia’s national interest. That is fundamentally what is engaged here. For Pacific nations, remaining connected to global finance is one of their highest priorities because it supports their own economic development and their economic resilience. Investment in capability; investment in new businesses; microfinance for small businesses; and making sure that project finance can be accessed for the kinds of mining, development, manufacturing and other projects that deliver good jobs, stable investment, national economic growth, regional interdependence and economic resilience in the region—all of that is in Australia’s national interest.  

Those are the questions that are being engaged here. In terms of regional Australia, this government has secured commitments from the banks that previous governments have failed to secure—a moratorium on regional bank closures from the four major banks, as well as an agreement to increase their commitment to, and their investment in, Bank@Post. I grew up in a little country town. I know how important those services are. And I know you would not be so mischievous as to suggest that there is a relationship between the services provided to regional Australians through their banks and the government’s determination to protect that— 

CHAIR: Minister, I hate to interrupt you, but it’s 1.30. 

Progress reported. 

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$4.7 billion bank heist goes unpunished

If you steal $100 you go to jail. If a bank steals $4.7 billion they just get a strongly worded letter.

The Government is trying to make sure bankers don’t face any personal responsibility or jail time when they commit a crime.

Transcript

As a servant to the many amazing people who make up our one Queensland community, I note that if an everyday Australian steals a few thousand dollars they go to jail, yet if a banker steals $4.7 billion they do not go to jail.

As at 31 December 2022, six of Australia’s largest banking and financial services institutions have paid or offered a total of $4.7 billion in compensation to customers who suffered loss or detriment because of fees for no service or non-compliant advice. ‘Banks gone bad’, greedily charging fees for no service and providing financial advice that failed to meet the standards for financial advice, ripped $4.7 billion off everyday Australians. And they got away with it. Let me name and shame them: National Australia Bank, AMP, ANZ, Westpac, Commonwealth Bank and Macquarie Bank. Australia has a Banking Executive Accountability
Regime, B-E-A-R, that’s supposed to hold bank executives to account. Clearly, BEAR does not work, because no executive has been fined, let alone jailed, for this corporate fraud.

Is corporate fraud now okay with Labor, with the Liberal-Nationals and with the teals? Apparently. Now Stephen Jones, the minister representing the banks, is planning to introduce legislation to take the penalties out of the BEAR scheme to expedite the banks ripping off more Australians in the future.

One Nation has a simple message for banking executives: don’t even think about it! Unless we keep and use penalty based regulation, nothing will stop these banks doing the same again. Free market competition, though, will bring the banks to heel.

A proper Australia Post bank will provide genuine competition for our banking cartel, using ethical, community based banking at thousands of new bank branches. It’s been proven with the original Commonwealth Bank a hundred years ago.

One Nation has a long history of standing up for everyday Australians. Clearly, the Labor Party does not.

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SVB Collapse, Credit Suisse, Australian Bank bail-IN?

After the SVB and Credit Suisse crisis a bail-in, which is where the banks take their depositors’ money to save themselves in a collapse, is still possible in Australia.

I call on the government to categorically rule out a bail-in and properly fund the bank guarantee scheme.

Transcript

As a servant to the many amazing people who make up our one Queensland community I note that in the last few weeks we have seen with the failure of Silvergate Bank and Silicon Valley Bank what is in aggregate the largest banking collapse in US history. Australia is not America and it is not Europe. If everyone keeps their heads, we will be fine. Our big four banks are bastards, yet they are well capitalised. Nonetheless, it would be wrong to not take this opportunity to revisit how to save a failing bank.  

I remind you that there are two choices: bailing out, with a large injection of taxpayer money, increasing debt for everyone, or bailing in, which is where the banks take their depositors’ money to save themselves. A bail-in still requires the bank to close for days or weeks, preventing customers accessing any money left in their accounts. Business are left without money to pay staff or suppliers. The effect on the economy is catastrophic.

Everyday Australians trying to pay for their shopping would find their account empty or their card suspended. Travellers may be stranded. 

One Nation introduced a bill to prevent bank bail-ins and to protect the people. Labor and the Liberal-Nationals defeated our bill in 2020. One Nation did lead a successful campaign against the cash ban bill that the Liberals, Nationals and Labor proposed in 2021, so Australians can still use cash in an emergency. This is relevant again because President Biden initially chose to seize half of Silicon Valley Bank depositors’ funds and freeze the rest for up to three years. That’s a bail-in. What followed was a run on all banks, forcing the president to backflip and instead initiate a bailout. 

Australia has a bank guarantee scheme, a bailout, but it’s a con trick. There’s no funding and no requirement to use it. It covers only $20 billion per bank—$80 billion total. This is supposed to protect $1 trillion in depositors’ funds. It’s eight per cent. I call on the government to categorically rule out a bail-in and properly fund the bank guarantee scheme. 

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Liberal/Labor running a protection racket for the banks

Another party is in Government but it’s still the same old protection racket being run for the banks.

Whether it’s bail-in, regional branch closures or restricting cash, Anthony Albanese’s Labor Government is continuing the Liberal party’s tradition of running protection for the big banks.

Transcript

It seems Stephen Jones is to the Labor Party as Josh Frydenberg was to the Liberals: the bank’s man in the government.

Whether it’s defending the right of the banks to bail in the cash in your account; whether it’s turning a blind eye to banks closing their rural bank branches, which has increased this year under Minister Jones; whether it’s allowing the King’s currency to be shunned so the banks can force everyone onto electronic banking, with every transaction helping bank profits and every sale providing a data- and profit-rich environment for the banks; or whether, as it is today, it’s letting banking executives off the hook for egregious behaviour, that should be criminal.

These hideous, inhuman banking crimes were brought to light during the Senate’s Select Committee on Lending to Primary Production Customers in 2017, an inquiry that Senator Pauline Hanson got and that I chaired.

Four years later, not one of those victims has been compensated nor a banker prosecuted. Minister Chalmers is protecting the banks over the best interests of the people.

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Anti Bail-In Bill defeated, but will be fixed – 2SM with Marcus Paul

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Transcript

[Marcus Paul]

All right, welcome back to the programme on this Thursday, December 3, where it’s 22 minutes away from eight o’clock, New South Wales, daylight saving time. And Senator Malcolm Roberts joins us on the programme. Good day, Malcolm.

[Malcolm Roberts]

Good morning, Marcus, how are you?

[Marcus Paul]

I’m okay. I think you’d still be disappointed with the bank bail-in voted down this week. I know you’ve done a lot of work on it.

[Malcolm Roberts]

Yes, we were disappointed, but we were expecting to get, have it defeated. We were mildly hoping the labour party would wake up, But they abandoned their core, but what has been very good, Marcus, is that as a result of my speech and as a result of the work, one of the liberals came up to me later and he organised a meeting with me and our staff and himself and a senior advisor from the treasurer’s department.

And they now acknowledge that there is a problem and that they have promised to remedy it. So it looks like it’ll be taken care of, anyway, thanks to the effort we’ve done.

[Marcus Paul]

All right, just remind my listeners, What this is all about, what is the bail-in?

[Malcolm Roberts]

Well, let’s talk about a bail-out first. A bail-out is when a bank gets into trouble and the government gives it taxpayer money. So basically a bail-out is where the taxpayer money goes from the taxpayer through the government, to the bank, save the banks, even though the taxpayers didn’t cause the damage and bail-in is where the bank takes the depositors’ money and converts into shares.

So they get their money, they get the depositors’ money and get out of trouble. And in exchange, the depositors get worthless pieces of paper called shares because the bank is so close to collapse, it won’t be of any value.

So then that means that the depositors have a worthless piece of paper or they can hang on for a few years and hope that the bank comes back, which it probably will in our system, but a bail-in takes money, steals money from the depositors of the bank.

[Marcus Paul]

All right, and you’re hopeful that eventually after further discussions, even though it was voted down earlier this week, you’re hopeful that you will get this passed?

[Malcolm Roberts]

Well, not passed, but modified by the government itself. So it’ll take care of it. So either we’ll get the corrections that we wanted, the modifications we wanted in the government’s bill, so that there’s no bail-in. Or if there is a bail-in possibility, then at least it will be honestly portrayed.

And so everyone can make up their own mind what to do, but we think a bail-in would be better ruled out because it then instils confidence in the banks. We’ve had something like $20 billion in notes go disappearing in the last 12 months because people are scared of what will happen to their cash if there is a bail-in.

Because they’ve had bail-ins in Greece and other countries, we see this as a magnificent opportunity to clarify and to make it very, very clear to people what is happening.

[Marcus Paul]

All right, you want more of us to drink Australian wine?

[Malcolm Roberts]

Yeah. I didn’t know if you knew it, but 30% of our wine export goes to China.

[Marcus Paul]

Oh, yeah I knew it, well used to.

[Malcolm Roberts]

That’s double the UK, double the UK, double the US but an inter parliamentary alliance on China, our friends in parliamentarian and parliaments and congresses around the world showed support for Australia. And they’re really annoyed with the bullying of China against Australia.

So we actually saw a video that was made up of people from Japan, parliamentarians, from Japan, who said, you know, we like our saki better mate, but Aussie wine, go and buy a bottle of Aussie wine, and then the Italian saying we’re the number one wine exporters in the world, and we make the best wine, but go and get a bottle of Aussie wine.

So we’re encouraging Australians to go and spend a bit more time in the wine rose and liquor store and get stuck into some Aussie wine and show the Chinese that we will carry on regardless of their threats.

[Marcus Paul]

Well that’s right, there’s no 212% tariffs here at home with our domestic wine. I mean, we know that wine, the sector itself valued at $4 billion in September, 2020, before these ridiculous over-inflated tariffs were imposed. Maybe we can, I know we export around 15 and 14% respectively to the United Kingdom and to the United States of our wine products maybe we could up their share of exports and not worry too much about China.

[Malcolm Roberts]

Exactly, and I think this is a problem that’s coming home to roost Marcus, we’ve gone to China because it’s the easy way out. We haven’t done the hard yards in this country of fixing the tax system, reducing our energy costs. We’ve instead inflated our energy costs.

We’ve doubled in, some places tripled our electricity costs for example, instead of doing the hard yards to fixing that energy sector and stopping the rort on climate and the subsidies, and instead of fixing the taxation system to make manufacturing more competitive, we have taken a lazy way out and just exported iron ore to China, coal to China, raw materials to China, agricultural products to China and just bought, whatever we can from China, very lazy way.

We’ve destroyed our manufacturing, let China supply us, and we’ve got to stop that. We’ve got to rebuild this country, bring it back to basics.

[Marcus Paul]

You’re not still betting on a Trump win, are you?

[Malcolm Roberts]

Oh yes, definitely. Definitely.

[Marcus Paul]

Malcolm, you still haven’t woken up.

[Malcolm Roberts]

No, no. The fact they’re coming in now there’s clear corruption, Marcus. And I think that Trump has recognised this. In fact, one of the Republicans said that we know there’s been corruption from the Democrats, especially for many, many years.

And Trump, to his credit has set the eyes in motion and the monitors in motion. And now it’s all coming home to roost for the Democrats. There’s serious corruption out there. And there’s a path for Trump to the White House. He’s definitely in.

[Marcus Paul]

Not till 2024, though.

[Malcolm Roberts]

No, no, it’ll be this year. You watch.

[Marcus Paul]

This year?

[Malcolm Roberts]

So much corruption going on that the constitution and the laws in America provides for this kind of circumstance. And Trump is in the box seat. He knows what he’s doing.

[Marcus Paul]

You want to bet me a bottle of wine on this? Australian wine

[Malcolm Roberts]

I definitely do.

[Marcus Paul]

All right. Now the Australian federal integrity commission, you know, that toothless tiger that’s been suggested, the centre for public integrity called a press conference to highlight the extensive inadequacies of the government’s draught Commonwealth integrity commission bill, 2020.

There were plenty of people present, including previous members of the high court, former judges from the Victorian court of appeal and a former judge of the New South Wales court of appeal. Now, Helen Haines MP has introduced a better version. The Australian federal integrity commission bill 2020. What do you say to this?

[Malcolm Roberts]

We actually like Helen Haines’s version much better. We’ve had a couple of presentations on it. We listened to Helen herself, came over to Pauline’s office and I joined them. It’s quite good. The Australian centre for public integrity endorses it. And the government’s bill is a shocker.

It’s just a lazy well, it doesn’t even work properly because politicians are treated differently from everyone else. They’re treated far too softly. And, that’s, you know, that’s the worst thing you can do to restore public confidence in the integrity in parliament.

The second thing is that the government’s proposal has a very high threshold for referrals. You have to be, have a lot of evidence there before you can even get through. And the third thing is that the Attorney General has powers to limit information that can be considered by the corruption commission.

[Marcus Paul]

Well as I said, it’s toothless.

[Malcolm Roberts]

Yes, that’s basically it, they can hide, they can still hide. And the other thing, Marcus, is it’s not retrospective meaning that we won’t be able to investigate any of the past dodgy dealings.

[Marcus Paul]

That’s right. And you know, we may never know why the government thought it was a great idea or a great investment to, you know, overspend on land at Badgerys Creek Airport, and the rest of it. Malcolm, I’ll have to leave it there today, but thank you very much, mate. We’ll catch up with you again next week.

[Malcolm Roberts]

I’ll look forward to drinking your wine.

[Marcus Paul]

He’s still in lala land over there. All right, mate. Good on you, we’ll talk soon.

[Malcolm Roberts]

See you, mate.

[Marcus Paul]

All right, there he is. Senator Malcolm Roberts.

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Anti-Bail-in Law

Transcript

Thank you, Mr President.

As a servant to the people of Queensland and Australia I proudly ask for the Senate’s support for the Banking Amendment Deposits Bill 2020.

Commonly called the NO bail-in bill.

Our purpose is to keep people’s money SAFE.

And to keep the banking system safe.

Let me first explain what is a bail-out and then a bail-in.

Bail-out’s have been used during financial crises when banks get into trouble and are a lifeline of money from taxpayers to banks to keep banks afloat. Govts act as a conduit from taxpayers to the corporate banks, even when the banks got into trouble due to their own greed or stupidity.

In times of profit banks are capitalists and in crises banks are socialist.

International Monetary Fund and G20 rules now though prevent taxpayers’ money being used to save a bank.

Instead requiring that rescue funds must come from shareholders and from depositors. A Bail-in.

Literally banks steal the money in retail deposit accounts and use that to save themselves. In exchange depositors get shares in the bank.

The shares are then suspended from trading – because the banks’ shares are worthless pieces of paper and will remain so for years.

‘Retail deposit accounts’ are the bank accounts of everyday Australians and small and medium-sized businesses.

This is money taken from these accounts, which people need to pay bills, buy stock, pay the rent and pay staff.

Gone.

This is money a couple is saving to buy their first home.

Gone.

This is money retirees cashed out of superannuation and is needed to live on, to buy food and clothing and pay bills.

Gone.

Gone. Overnight.

Reserve Bank figures show that 1 trillion dollars is available to be taken in a bail-in.

That’s what the Liberal, Nationals and Labor parties defend when opposing my bill.

Next, I’ll share a letter from a constituent, Peter Thompson, last week:

Quote: “As a self-funded retiree I shouldn’t be lying awake at night worrying how to safeguard my deposits from “bail in” by predatory and profligate banks, however I am!”

“I have Greek friends who lost most of their saving in the Greek bank bail in.”

“I don’t trust APRA nor the Treasury to protect my interests and certainly don’t trust any bank. We need a people’s bank… now.”

“What can I do to protect my bank deposits?”

Peter continues: “Withdraw cash, which by design is getting harder and harder to do, and take the risk it will be stolen by more obvious thieves?”

 “One can’t buy land or property with the Australian real estate market in radical downturn, I want my deposits in a bank.”

“Your Banking Amendment (Deposits) Bill is a vote winner. It will give Australians, many of whom have no idea of what “bail in” entails, an opportunity to understand and take action to protect their savings and create confidence in the system. “

Thank you, Peter. Creating confidence is exactly why I have proposed this bill.

The public understands that the govt’s Cash Ban bill is designed to force everyday Australians to keep all their money in the banking system to make a bail-in much more effective.

Labor, Liberals and Nationals passed the Cash Ban bill through the House of Reps and are now terrified of the public and backbench backlash if it enters our senate.

The public understands our real estate prices are the third highest in the world.

The public understands that the govt’s COVID restrictions are destroying small and medium business and the ability of those business owners and their staff to service their mortgage, loans and credit card debt.

In fact, there is a sleight of hand going on here. A handful of large retail businesses, telcos and internet-based companies are doing better than ever.

While hundreds of thousands of small and medium businesses are doing much, much worse.

The effect on the economy of the govt’s COVID restrictions is much worse than the headline figures.

And yet State Governments recently doubled down with more lockdowns, more restrictions, more destruction of wealth, and more unemployment amongst small and medium businesses.

So the public are responding by removing cash from the banking system at an alarming rate – $20 billion in notes have gone missing in calendar 2020.

Cash is being stashed under beds.

My Bill is an opportunity to restore confidence in the banking sector.

It’s an opportunity to attract deposits from other countries where bank deposits are less secure than ours.

We could be a safe haven for legal investment in our banking sector – money that isn’t coming, for once, from the taxpayer.

Why shut that down and make banks even more reliant on the Government for funding?

What a missed opportunity that will be for our banks and for their customers.

The Liberal, National and Labor Parties now have a chance to stand up for everyday Australians.

To protect bank deposits from being bailed in.

The response from these tired old parties? Denial.

We’re told that this bill is not necessary. We’re told that the law does not allow for a bail-in.

I ask all Australians to listen more closely. Listen for their proof.

There is none.

No legal opinion, nothing but bland assurances from self-interested public servants hoping that constant repetition will fool the public.

Here’s MY argument. The Crisis Resolution Powers and Other Measures Act 2018, that was passed in the dead of night, with just 7 Senators present, uses weasel words to hide the reality.

The wording does allow for the banking regulator – APRA – to instruct the banks to bail-in retail deposit accounts.

The protections that the tired old parties rely on for the supposed opposite case are contained, not in the Crisis Resolution Powers Act, but in the Banking Act.

Their argument is a nonsense because the emergency provisions powers in the Crisis Resolution Powers Act over-ride the everyday protections in the Banking Act.

That’s why the govt has an emergency powers act. To provide extra powers in an emergency.

This is not just my opinion. It’s the International Monetary Fund’s opinion. Quote:

“The new ‘catch-all’ directions powers in the 2018 Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill provide APRA with the flexibility to make directions to the banks that are not contemplated by the other kinds of general directions listed in the Banking Act.”

“[APRA’s] Direction powers are a key element in the resolution process for a distressed bank. APRA could order a bank to recapitalize…using the funds of unsecured creditors”

The IMF goes on to define ‘unsecured creditors’ as shareholders and retail depositors.

Liberal MP Tim Wilson, Chair of the House Standing Committee on Economics has admitted the Crisis Resolution Powers Act does allow for a bail-in.

Liberal Senator Amanda Stoker in a letter to a constituent admitted that legislation allows for a bail-in.

Yet their party bosses say the complete opposite.

Why would they do that?

Well, the answer is yet again because of our international obligations. The G20 and the IMF have dictated that taxpayers’ money can’t be used to rescue a bank.

The tired old parties know that letting unelected bureaucrats in New York and Brussels tell Australians what to do in a crisis does not pass the pub test.

So the tired old parties hide the facts and contradict reality using weasel words.

It‘s instructional to note that New Zealand’s response to the same IMF and G20 instruction is to do the opposite. The Kiwis dutifully wrote their bail-in laws and made them honest and transparent. If a bank fails the bank closes, pays off it’s debts using depositor funds and then re-opens the next day. Depositors can access what remains of their money. If there is any.

I’m not suggesting the New Zealand model is better. More honest yes, better no.

There’s a simple solution for bank failures.

When a bank fails, the Government could issue bonds. Currently we’re offering just 1% interest on bonds, so it’s not a costly option. We then use that money to buy new shares in the failing bank. That injects enough capital for the bank to survive.

Then vest those shares with the Future Fund, who pay that small interest payment on the bonds.

In a few years those shares will be worth money again and the Future Fund can sell them back into the market in an orderly fashion.

In this simple, ‘One Nation bank survival plan’, taxpayers’ money would not be used to save the bank, so our IMF and G20 masters should be pleased.

Nobody in our process loses money. Depositors keep their cash; banks keep trading, mum and dad shareholders retain the value of their shares over the medium term.

What’s the Labor and LNP track record on corporate bail-outs?

Both gave foreign car companies billions and then watched them shut up shop as soon as the money tap was turned off.

If we’d been asking for shares for that money, we would now own the car companies. We would still have a car manufacturing sector, we would still have all those wonderful breadwinner jobs for workers.

Prime Minister Gillard gave ABC Child Care $120m. Not in exchange for shares, it was another gift from taxpayers.

If we’d asked for shares in ABC Childcare in return for the bail-out those shares would be worth $250 million today.

Our response to a bank failure should not be “go and steal it from customers.“

Our response should be to use capitalism to fix crony-capitalism.

Labor are having a lot to say about their Financial Claims Scheme Guarantee (FCS).

The Financial Claims Scheme Guarantee will advance up to $20 billion per bank, to protect deposits if a bank fails.

Let’s take a closer look at the Financial Claims Scheme Guarantee.

The vast majority of the $1 trillion in retail deposit accounts is held by the big 4 banks. $20 billion times 4 though is only $80 billion. The Financial Claims Scheme Guarantee will save less than 10% of bank deposits!!!!

The Financial Claims Scheme Guarantee is not active and is not funded. There’s no money sitting there ready to go. Not one cent.

Should a bank fail, the Treasurer must issue a notice to activate the scheme. Yet, the Labor scheme uses taxpayer’s money to bail-out banks so the Treasurer will not issue the notice because the notice would breach IMF orders.

In the unlikely event of the Financial Claims Scheme Guarantee being activated, there’s a second problem that Labor never discusses: once the Financial Claims Scheme Guarantee is activated APRA must liquidate the bank to get taxpayers’ money back.

How much does anyone think will be available to retail depositors if the bank is liquidated? And how long will customers have to wait to get their money back from the liquidator?

The Financial Claims Scheme Guarantee is worse than a con job. It will make things worse.

Earlier I said that once a bank fails, whether that failure is public or only known to the regulator, the Financial Claims Scheme Guarantee scheme can be activated if the Treasurer so chooses.

The whole point of a bail-in is to prevent a bank failing.

This means the bail-in can only come first. And will come first. Then if the bail-in doesn’t work the Financial Claims Scheme Guarantee triggers, 10% of bank deposits are saved and the bank is liquidated.

This is what Liberals, Nationals and Labor are relying on to falsely tell everyday Australians ‘our money is safe?’ Yet the reality is that it’s not safe.

Following the dictates of unelected globalist masters is more important to them than looking out for the interests of everyday Australians.

The Government has advanced a criticism of my bill, that the definition of ‘retail deposit account’ introduces a different definition than is contained elsewhere in the Banking Act.

This argument fails because the only place the phrase ‘retail deposit account’ appears in the Banking Act is in my amendment. We did that deliberately so as to not interfere with the rest of the act.

Criticism dismissed.

In concluding Mr President, at no time has the Government, the Treasurer or APRA actually said they will not order a bail-in. These govt agencies duck the question and say “APRA doesn’t have the power”.

Well Mr President my bill clears that up. My bill adds one clause to the Banking Act that simply says APRA does not have the power to order a bail-in.

No other powers are affected.

Passing my bill ensures everyone will read it the same way.

Let Australians know that our money is safe in a bank. Let Australians know that there’s no need to stuff cash under the bed.

Even the Australian Bankers Association in its submission said if there is any confusion about what the law actually says then consider passing my bill.

What a great idea.

Let’s pass this bill, to keep people’s money safe.

/1 Comment/by

Questioning Reserve Bank of Australia (RBA) – Cash Ban and Bail-In

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One Nation has led the fight in the Senate against the Cash Ban bill, which makes any cash transaction over $10,000 illegal. Our efforts stopped the bill from passing, but the Government has not formally withdrawn the bill. At this estimates we started a campaign to have the bill removed from Senate business permanently. Our first questions asked the Reserve Bank if they still thought the cash ban was a good idea.

We didn’t get the answer we wanted, it seems the Reserve Bank is still trying to force people into the banking system and take away their right to decide what to do with their own money. Cash Ban Explanation – https://youtu.be/93EigYTWe5s

Then we asked about our bill coming up later next month to prevent banks using money deposited with them to pay their own expenses in a bank emergency.

What was obvious to Senator Roberts is that the Reserve Bank had no idea they had made a submission on our bail-in bill. The Reserve Bank was not on the list of submissions. Where did their submission come from? Could the Government have written it, not the Reserve Bank? The Reserve Bank is an independent regulator, it would be a scandal if the Government is writing their policy for them. One Nation will pursue this matter further.

Transcript

Senator ROBERTS: Thank you for attending today. I’ve seen reports that the Reserve Bank has printed an extra $12 billion in banknotes this year to keep up with demand. Do you have the accurate figure, please?

Dr Debelle: I do. I can provide you with an accurate figure. Yes, we have printed extra bank notes because there has been additional demand. Between 16 March and 6 August we printed 220 million banknotes worth $12.5 and they were issued into circulation. I don’t have the most up-to-date information to hand, but I can provide that.

Senator ROBERTS: If you could, that would be appreciated.

Dr Debelle: I don’t have it completely to hand. I may have it before we finish this line of questioning.

Senator ROBERTS: That’s impressive. The Reserve Bank’s written answer to my question on notice from the February estimates—it’s reference AET93—included this response—I’m slightly paraphrasing: ‘While cash is used less frequently in Australia, it is still widely held for precautionary purposes and some members of the community really very heavily on cash for their daily lives. Cash remains an important payment method for older households, those with disabilities and those living in rural and remote areas where electronic banking may not function reliably.’ Do you consider that people are voting with their feet and withdrawing cash to get ahead of the cash ban bill?

Dr Debelle: What we have seen is increased demand for banknotes, as you just highlighted in your previous question. I think that is mostly as a store of value. What we’ve seen is around 50s and 100s in particular; actually mostly 50s. I think it is primarily as a store of value, particularly in a world where interest rates are as low as they are.

Senator ROBERTS: So people have an alternative in cash. People need that alternative. Does the Reserve Bank support withdrawal of the widely criticised cash ban bill and instead support the development of a bill that actually addresses money laundering and tax compliance? In other words, is it time to kill the cash ban bill?

Dr Debelle: We’re part of the Black Economy Taskforce and we’re comfortable with the recommendations of that.

Senator ROBERTS: Item 1.27 of the Economics Legislation Committee’s report on the bail-in bill includes this statement:

The Reserve Bank of Australia … indicated the information provided by the Treasury to the committee’s inquiry was consistent with their views.

Is this correct?

Dr Debelle: I have no reason to suspect otherwise.

Senator ROBERTS: How did the RBA communicate with the committee? Because my office saw no submission.

Dr Debelle: I will have to take that on notice. I did not have direct involvement with this. Michelle, I don’t know if you can answer this?

Ms Bullock: I didn’t have. I know we had someone on the Black Economy Taskforce but I’m not aware of this particular bill.

Senator ROBERTS: Could you also send me the full comments that you made to the committee.

Dr Debelle: Sorry, the committee on the bail-in bill?

Senator ROBERTS: Yes, please. Your views to the committee include this statement: ‘The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 did not include a statutory power for APRA to write down or convert the interests of depositors as unsecured creditors of a failing ADI.’ Is this correct?

Dr Debelle: Yes. Michelle, I think you can confirm that.

Ms Bullock: Yes, our view is that it does not include those sort of provisions.

Senator ROBERTS: The G20 Financial Stability Board’s Key attributes of effective resolution regimes for financial institutions, adopted by Australia in October 2011, states: ‘Powers to carry out bail-in should enable authorities to convert into equity’—meaning shares of the bank in this case—’all or parts of unsecured creditor claims.’ And elsewhere it says that means deposits. We have a clear obligation, then, under this agreement, to provide a bank bail-in mechanism. If the 2018 act did not do that, where else is that provision?

Dr Debelle: We have depositor preference, as you may be aware, and a deposit guarantee—sorry, we have a deposit guarantee scheme, which guarantees bank deposits.

Senator ROBERTS: I understand the timing of that doesn’t quite back up what you’re saying. Let me look at that more closely. New Zealand responded to the Financial Stability Board’s instruction to pass bail-in laws with their open bank resolution system. The New Zealand Reserve Bank explains this is a follows: ‘If a bank fails, it is placed under statutory management and closed. If losses cannot be covered by shareholder funds, then a proportion of depositors’ funds are set aside and frozen for the purpose, then the bank reopens.’ That could not be clearer. New Zealand has a bail-in law. The UK and Canada have the same bail-in laws. I ask you again, if the crisis resolution act did not establish bail-in laws, where are ours?

Dr Debelle: As I just said, we have a depositor protection scheme in Australia. Michelle, do you want to add anything to that?

Ms Bullock: No, only that our understanding of the bail-in laws, and I think APRA’s understanding of the bail-in laws, is that they apply to certain hybrid instruments which may be bailed in, not depositors. Depositors have depositor preference and also the Financial Claims Scheme. My understanding, and I think it’s the common understanding, is that bail-in does not apply to deposits in Australia.

Senator ROBERTS: I put it to you that it is our obligation under the G20 agreement to conduct a bail-in if a bank fails, that the 2018 act was specifically written to allow a bank bail-in, and that the wording chosen in the 2018 act was deliberately obtuse to hide that fact.

Dr Debelle: I’d like to confirm that we have depositor protection. You can take this issue up with APRA when they come later on, but that’s the state of play in Australia.Senator ROBERTS: Thank you. I have some more questions to put on notice.

/by

Questioning Australian Prudential Regulation Authority (APRA) – Bail in Laws

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Bail-in measures are designed to inject capital into a bank that gets into trouble. The bank is authorised by the corporate regulator – APRA to take money out of the bank accounts of depositors and to use that money to pay their own bills. The depositor loses their money but does get shares in the bank, which will be worthless, but may come good years down the track if the bank doesn’t go broke.

APRA maintain that the emergency banking measures passed in 2018 by the Turnbull Government did not include a bail-in power. Further, if they used the general powers in that act to order a bail-in, that bail-in would be declared “invalid”.

This is because the Banking Act protects deposits. One Nation’s legal advice is that the emergency powers over-rule the general protections in the Banking Act and APRA do have bail-in powers. One Nation have proposed a bill to clear this up by adding one simple paragraph to the Banking Act that says APRA do not have the powers to order a bail-in.

APRA doesn’t want our bill passed because they know they do have bail-in powers and don’t want us to take them away. This round of questions did extract an admission that APRA does have bail-in powers, but not for deposits. So at least we are getting a little more honesty out of APRA on this matter. We also spoke about their emergency bank rescue plans.

One Nation feels these plans will show a bail-in is part of the plan. Getting our hands on those plans won’t be easy.

Transcript

Senator ROBERTS: Thank you all for participating tonight. APRA’s submission 197 to the inquiry into our bank anti bail-in bill—and I am slightly paraphrasing—says that APRA does not have the power to direct Australian authorised deposit-taking institutions to bail in a deposit because that would be inconsistent with the objects of the Banking Act, particularly the paramount objective of protecting depositors, and that such a direction would be found to be invalid. Who would find it invalid?

Mr Byres: It could be challenged by anyone who wished to take it before the courts—that would be the answer. Our direction could be appealed to a court.

Senator ROBERTS: That is my understanding, too—that only a court can find an APRA direction invalid. Can I confirm that it is your position that if a bail-in occurs those depositors who have lost some or all of their money must then take their banks to court at their own expense, with millions of dollars in legal expenses, to seek an order declaring the bail-in invalid? They will have very little in the way of funds to fund that because their deposits have been cleaned out.

Mr Byres: Your question is premised on the assumption that there is a bail-in. I think in our correspondence with the committee and in our submission to the committee on this bill we made very clear that our whole purpose is to protect depositors, not to bail them in. A bail in of depositors would be anathema to the way we operate and our statutory purpose. So I think it is a scenario that is entirely hypothetical, because that would not be a direction that we would give.

Senator ROBERTS: The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 says APRA has a right to enact emergency powers and they are often said to be overruling. Does that emergency directions power have primacy over the general banking directions in section 2A in the Banking Act?

Mr Byres: I’m not sure where exactly you are referring to, but you are right: we have strong powers to deal with an emergency situation where a bank or another financial institution is in severe financial stress. The purpose of that in the case of a bank, to be clear, is to protect the community and depositors.

Senator ROBERTS: The IMF disagrees with APRA on the strength of the section 2A protections. The IMF has stated that:

The new ‘catch-all’ directions powers in the 2018 Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill provide APRA with the flexibility to make directions to the ADIs that are not contemplated by the other kinds of general directions listed in the Banking Act.

If the IMF are correct, you do have bail-in powers. Is the IMF wrong?

Mr Byres: The bail-in powers that we have relate to capital instruments. Again as we put in our submission to this committee when it conducted its inquiry into that bill, the objective is very clearly to have bail-in for subordinate capital instruments. That act and, in particular, the sections of that act which attracted a lot of attention were designed to make sure that there was legal certainty and that the contractual arrangements that are in those subordinated debt and hybrid instruments would work in this.

Senator ROBERTS: Our bill simply clarifies that you do not have bail-in powers, which is what you’re  telling me here today. Why are you opposing our bill when it does nothing more than clear up what the law is saying that you say it is?

Mr Byres: Sorry, Senator. We do have bail-in powers. They relate to certain specific instruments. As the law currently applies to banks, it applies to their subordinated debt or, in the jargon of the bank supervisor, tier 2 capital, and it applies to hybrid capital instruments or additional tier 1 capital. So we do have bail-in power. It was designed to give legal certainty to the bail-in of those instruments if needed. It does not apply to deposits.

Senator ROBERTS: Our bill simply clarifies that it doesn’t apply to deposits, so why would you oppose it? It doesn’t stop the bail-in of other funds, appropriately, but it would stop the bail-in of deposit funds: cheque accounts, savings accounts, small business accounts, private accounts. That’s all it does, so it’s agreeing with you. Why would you oppose it?

Mr Byres: The view we put in the submissions was that it was not necessary because we thought the current law was adequate.

Senator ROBERTS: It doesn’t change anything for you; it complies with what you just stated. I can’t understand why you’d oppose it. It makes two minor changes that are in line with what you’re saying.

Mr Byres: As we said in our submissions, we didn’t think it was necessary.

Senator ROBERTS: Okay. APRA’s 2018 paper titled ‘Increasing the loss-absorbing capacity of authorised deposit-taking institutions to support orderly resolution’ states:

APRA will need to work with ADIs on an ongoing basis to ensure adequate resolution plans are developed and maintained. These plans—

supposedly—

outline how APRA would use its powers to manage the orderly failure of ADIs and identify steps that can be taken to remove barriers to achieving effective resolution outcomes.

Have those plans been drawn up? If so, what are they?

Mr Byres: I’ll start, and then I’ll see if my colleague Mr Lonsdale wants to jump in. One of the things we have to do is prepare for the unexpected. We can never provide a guarantee that a bank—or, for that matter, an insurer or another type of financial institution—won’t get into financial difficulty. We need to have crisis plans, like contingency plans, drawn up for how we would respond in the unlikely—and I stress ‘unlikely’—scenario that a bank was close to failing or was failing. The sorts of plans that we have—we’ve just stepped through what actions we might be able to take and how we would achieve an orderly outcome, but, as I’ve said many times already in my answers to your questions, this is with a view to protecting depositors.

Senator ROBERTS: Just to interrupt there: you said the plans would be drawn up. Have they been drawn up is what I asked?

Mr Byres: We have plans drawn up, yes, but they could always be improved. The institutions themselves are constantly evolving and changing, so the plans always need to be updated to make sure they continue to be current.

Mr Lonsdale: I would just add that this has been a big priority for us this year. In fact, the government has provided APRA with some funding in the budget. A significant portion of it focused on recovery and resolution development, so, as Mr Byres said, there’s a lot of work in continually keeping the plans updated and making sure they’re operationally fit for purpose.

/by

Senator Roberts makes submission to Bank Bail-In Inquiry

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The following is Senator Roberts’ submission to the Senate Economics Legislation Committee inquiry into the Senator’s Banking Amendment (Deposits) Bill 2020. See the media release in relation to this submission here.

Banking Amendment (Deposits) Bill 2020

I would like to thank the almost 200 submissions in support of the Banking Amendment (Deposits) Bill 2020 (the Bill). Opposition from the financial establishment has been to maintain the ambiguous wording in the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2018 (the Act).

I would advise the Committee as follows.

Summary by section

  1. The $250,000 FCS guarantee triggers once a bank fails.  A bail-in is designed to save a bank from failing, meaning the FCS does not prevent a bail-in because the bail-in comes first.
  2. APRA’s submission requires the phrase “any other instrument” to remain to meet future developments in financial products. I agree, this bill retains that wording and adds a single modifier – ‘except retail deposits’.  APRA’s objection is moot.
  3. Some submissions suggest a bail-in conflicts with Section 2A of the Banking Act which protects deposits.  This argument flounders on the effect of a bail-in, which is to save the bank.  In turn this action protects some deposits immediately and the rest are restored years hence.  The wording of 2A does not preclude a bail-in, it precludes an unsuccessful one.  
  4. The IMF are on record as indicating the Crisis Resolution Powers of the 2018 Act have primacy over the general banking directions (S2A) provided in the Banking Act. These crisis powers allow APRA to order a bail-in before the FCS guarantee would start.
  5. Some submissions relied on the absence of a provision in account Terms & Conditions as the explanation for why bail-in provisions do not apply to retail deposits. As banks are adding this clause to their Terms & Conditions, I would consider this objection moot.
  6. APRA have indemnified bank executives for actions they may take in the implementation of emergency powers, including a bail-in.
  7. Bail-in involves banks issuing new shares in exchange for the funds they take out of depositors’ accounts. This double hit – reduced goodwill towards the brand and dilution of share prices – will comprise a massive hit to our Super Funds, self-managed retirees and the more than one million Australians with bank shares.
  8. Australia is obligated by membership in international banking and financial agreements to have in place a deposit bail-in capability that specifically prevents taxpayers’ money being used to save a bank. It is likely that this clause will prohibit the Treasurer from activating the FCS guarantee should a bail-in fail, simply because that is taxpayers’ money as well.

There is no doubt that the existing legislation allows for a bank bail-in. My bill asks all Senators a simple question – is this what you want? Millions of super fund members and bank shareholders await your answer.

1. The $250,000 FCS Deposit Guarantee

The Financial Claims Scheme (FCS) deposit protection was an excellent initiative from the Rudd Labor Government back in 2008.  However, things have changed since then.

The FCS is not active, and therefore “The Scheme is activated at the discretion of the Australian Treasurer”.[1] As confirmation, in 2018 APRA Chair Mr Wayne Byres addressed the Economics Legislation Committee, regarding the FCS: “Well, it’s not currently activated in the sense that it’s only activated when a bank fails…the FCS is there to make sure that particularly retail depositors but also depositors with amounts up to $250,000 are not at risk of losing their money, should a bank fail.”

The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, EM states: “In the unlikely event that a bank fails the Treasurer may activate the FCS…these specific depositor protections would generally only apply as a last resort, once an ADI* cannot be resolved.”

The ABC in their article on this bill raised the spectre of a run on the banks if, for instance the real estate market melts down.[2] The Government seems to have considered the impact of a bank run on the effectiveness of a bail-in, and recently added secrecy provisions to the Act so that the public would not be alerted prior to a bail-in.

Melissa Harrison’s submission 60 used the IMF’s 2019 assessment of the FCS: “The Banking Act does not compel APRA to make the appointment of a statutory manager public… As the authorities are well aware, the statutory management power should be used very cautiously as the appointment of a statutory manager could destabilize the bank by triggering or exacerbating funding runs”.[3]

A bail-in would occur prior to the FCS guarantee being authorised, with the new secrecy provisions leaving customers in the dark until their money disappears from their bank account.

A few other issues with the $250,000 guarantee are:

  1. It is organised by bank by account holder. This means accounts owned by foreign citizens or entities would be bailed-in using Australian taxpayers’ funds;
  2. The FCS is unfunded;
  3. The FCS is limited to $20bn per bank. The Commonwealth Bank, for example, has 16 million account holders. $20bn will only cover 80,000 of those to the full $250,000. Alternatively, cover could be extended to all 16 million account holders but only for the first $1250.  

2. APRA: We need ‘any other instrument’ in the Act

From APRA’s submission 197: “We agree that if the intention of the Act was to only cover Additional Tier 1 and Tier 2 capital, an addition of ‘any other instrument’ would have been unnecessary. However… ‘any other instrument’ was included in contemplation of further classes of capital which may be added in the future.…the reference to ‘any other instrument’ was neither intended to, nor does it in fact extend to, deposits.”

*ADI = Authorised Deposit Taking Institution. For accessibility this submission uses “bank” wherever possible.

I agree with APRA that this reference is needed for future developments. This is why the wording of the bill does not remove the phrase “any other instrument”. It simply applies a single modifier “not including a deposit account” and then defines what a deposit account is.

As this clause still operates in the manner requested by APRA, their argument is moot.

Treasury have also objected to including this definition in the Act because it introduces a definition not in use elsewhere in the Act. While I feel this is clutching at straws, Treasury are free to introduce an amendment to prevent our definition being used more widely.

3. Bail-in is inconsistent with depositor protection (S2A)

From APRA’s submission 197: “APRA has broad directions powers, all of which must be used consistent with the objects of the Banking Act (particularly the paramount objective of protecting depositors). As such, APRA could not direct the insertion of a conversion or write-off provision into customer deposit accounts given such a direction would be inconsistent with the objective of depositor protection. Such a direction would be found to be invalid.”

This argument flounders on the effect of a bail-in, which is to PROTECT depositors’ funds by:

  1. Converting some part of depositors’ funds to a security (forced purchase of shares in the bank) that can be converted back to funds upon sale at a future time; 
  2. This saves the bank from failure and in turn, protects the remaining depositor funds;
  3. 2A does not prevent a bail-in, it prevents a failed bail-in.

This bill is necessary because of the loss of amenity in the period between the funds being seized and many years down the road, when the share price recovers and the shares redeemed.  Small business, retirees, low income earners will lose homes and businesses in a bail-in.

4. IMF statements conflict with Treasury and APRA submissions

The IMF disagrees with APRA on the strength of S2A protections. An IMF report states:[4]

“The new ‘catch-all’ directions powers in the 2018 Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill provide APRA with the flexibility to make directions to the ADIs that are not contemplated by the other kinds of general directions listed in the Banking Act.”

In a February 2019 assessment of Australia’s bank resolution and crisis management, the International Monetary Fund noted:[5]

“[APRA’s] Direction powers are also a key element in the resolution process for a distressed ADI; directions can be used to implement a range of resolution options, including facilitating recapitalization. Hence, the framework allows for the possibility that a problem bank could be resolved while under private control as APRA could order an ADI to recapitalize.”

The IMF are saying that the 2018 Crisis Resolution Powers have primacy over the general directions statements in the Banking Act. These allow APRA to ‘facilitate recapitalisation’ which is the definition of a bail-in and “under private control” means before it goes bust and the $250,000 guarantee starts.

If APRA and Treasury’s submissions are correct, then the IMF is wrong.

5. Banks can’t change their Terms & Conditions to allow a bail-in

APRA submission: “While an ADI may unilaterally change terms and conditions for customer deposits, it may not do so where the change is to facilitate a conversion or write-off of customer deposits. This is because to do so would be inconsistent with unfair contract terms legislation under the ASIC Act. A term allowing an ADI to write off or convert a retail deposit would amount to an unfair contract term. Moreover, even if an ADI was not prohibited from changing its terms in this way by unfair contract terms legislation, APRA would use its powers under the Banking Act to protect depositors and prohibit an ADI from changing these terms to insert write-off provisions.”

Treasury’s submission contained the same argument.The legislation referenced actually states: “Only a court can decide whether or not a term is unfair.  “ So the legislation does NOT prevent bail-in provisions being added to Terms & Conditions. The protection comes from:

  1. APRA using their oversight powers to unwind such an attempt; or
  2. Affected depositors taking the might of the Australian banks to Court to get a ruling that this was indeed an unfair contract term.

Neither of these has happened. APRA has however had an opportunity to intervene when our banks started adding bail-in provisions to their Terms & Conditions. Please view submission 166 from Adams Economics, Annexe C for more.

APRA and Treasury are relying on a protection provided by APRA’s regulation powers that only exists if those powers are used.

6. APRA indemnifies bank executives who carry out a bail-in

In its 2019 assessment the International Monetary Fund noted:[6]

“Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill, provides for clearer immunity for an institution, its directors, management, employees and agents when taking reasonable steps to comply with an APRA direction…the Bill provides that a person is not liable in an action, suit or proceeding (whether criminal or civil) in relation to anything done, or omitted to be done, in good faith by the person if it is done for the purposes of complying with a direction given by APRA.”

This indemnity protects bank executives from legal action over their decision to conduct a bail-in.

7. Super Funds and self-funded retirees will be devastated

Our banks are some of the most valuable, even beloved brands in Australia. The financial damage to their share price from the loss of goodwill from a bail-in will be in the billions.

A greater loss though will come from the issuing of new shares to depositors in exchange for their savings. This dilutes the share price for existing shareholders. This is the reason for a bail-in given by the IMF – the cost of the bail-in must be worn by shareholders, not taxpayers.

Who are these shareholders if not taxpayers? Fourteen million Australians have superannuation accounts which contain a significant exposure to bank shares. There are more than a million everyday Australians who own bank shares directly.

Australia privatised our State Bank (The Commonwealth Bank) by giving everyday Australians discounted shares. Bank share ownership in Australia is the highest in the world, and our compulsory super ranks third in the world for number of people covered in percentage terms.

The IMF/G20 can champion a bail-in over a bail-out to protect taxpayers all they like. In Australia our taxpayers and our bank shareholders are one and the same.

The Government has looked the other way while banks have lent to the real estate market at the cost of compromising their loan book diversity. If it all melts down that is on the Government, not shareholders.

Government intervention by recapitalisation financed with Government bonds transferred over to the banks over time will, in the long run, not cost taxpayers money but it will avoid millions of everyday Australians getting done over by the IMF.

8. Further notes on our international obligations

Depositors are considered ‘unsecured creditors’ to a bank. This is apparent in the RBA publication ‘Depositor Protection in Australia’, which comments on “…other unsecured creditors, including depositors”.[7]

The Australian government’s 2014 ‘Financial System Inquiry Final Report’ acknowledged:[8]

“Inevitably, failures can and will occur, the system will be exposed to crises and, at times, unsecured bank creditors will be exposed to loss.

The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. The Board includes all G20 major economies. Australia is a member and participates in the process.

The Financial Stability Board’s (FSB) Key Attributes recommend that a resolution regime should “allocate losses to firm owners (shareholders) and unsecured and uninsured creditors (depositors)”.[9]

Australia is represented on the FSB by the Reserve Bank of Australia and Treasury and we have endorsed the FSB’s ‘key attributes’.

A further look at the ‘key attributes” reveals this provision:[10]

“The TLAC standard has been designed so that failing G-SIBs [banks] will have sufficient loss-absorbing and recapitalisation capacity available in resolution for authorities to implement an orderly resolution that minimises impacts on financial stability, maintains the continuity of critical functions, and avoids exposing public funds to loss”.

From submission 166 from Adams Economics: At the 2010 G20 Seoul Meeting, the Australian Government committed Australia to the Summit Document13, which included paragraph 30: 

“We reaffirmed our view that no firm should be too big or too complicated to fail and that taxpayers should not bear the costs of resolution.”

9. Conclusion

If I may give the last word to Queensland LNP Senator Amanda Stoker. On the 5th November 2018, Senator Stoker explained in a letter to a constituent her view of the Act: 

“The legislation facilitates bail-in as a type of resolution power which is available for dealing with financial institution distress. This was done after the G20 leaders endorsed a new Financial Stability Board standard for Total Loss-absorbing Capacity.”

I thank the Senator for that clarity. Clearly the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2018 was in fact an implementation of the Financial Stability Board’s requirements for member nations to have legislation that allows a bank bail-in as a way of preventing public funds being used to bail out a bank.

Could it be that as our international agreements require bail-in rather than taxpayer funded bail-out and the Government, The Treasury and APRA have spent two years hoping nobody notices? I wonder because New Zealand have enacted their bail-in laws in the open, based on the same agreements we are signatory to.

The Government has a simple choice:

Either: Oppose our bill and admit the wording of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2018 was indeed to give APRA the power, and the banks the right, to bail-in depositor funds. Then be honest with the electorate that banks have been given bail-in powers under a smoke screen of ambiguous wording.

Or: Pass the Banking Amendment (Deposits) Bill 2020 to give depositors confidence in their bank deposits and provide clarity for stakeholders.

[1] Grant Turner, ‘Depositor Protection in Australia’ [2011] (December) Reserve Bank of Australia Bulletin 45-55, 51.

[2] Nassim Khadem, ‘Coronavirus crisis heightens fears bank deposits could be wiped out under ‘ambiguous’ laws’, Australian Broadcasting Corporation (online, 16 July 2020) https://www.abc.net.au/news/2020-07-16/coronavirus-crisis-heightens-fears-bank-deposits-could-be-wiped/12458462.

[3] International Monetary Fund – Monetary and Capital Markets Department, ‘Australia: Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management’ (Country Report No. 19/48, 21 February 2019).

[4] International Monetary Fund – Monetary and Capital Markets Department, ‘Australia: Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management’ (Country Report No. 19/48, 21 February 2019).

[5] International Monetary Fund – Monetary and Capital Markets Department, ‘Australia: Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management’ (Country Report No. 19/48, 21 February 2019).

[6] International Monetary Fund – Monetary and Capital Markets Department, ‘Australia: Financial Sector Assessment Program-Technical Note-Bank Resolution and Crisis Management’ (Country Report No. 19/48, 21 February 2019).

[7] Grant Turner, ‘Depositor Protection in Australia’ [2011] (December) Reserve Bank of Australia Bulletin 45-55.

[8] The Australian Government the Treasury, Financial System Inquiry(Final Report, 7 December 2014).

[9] Ulf Lewrick, José María Serena Garralda and Grant Turner, ‘Believing in bail-in? Market discipline and the pricing of bail-in bonds’ (Working Paper No. 831, Bank for International Settlements, December 2019).

[10] Financial Stability Board, ‘FSB issues final Total Loss-Absorbing Capacity standard for global systemically important banks’ (Press Release 74/2015, 9 November 2015).

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Stop banks stealing our money

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Stop banks in financial trouble from stealing our savings is the message of Senator Roberts’ submission to the Bank Bail-in inquiry.

“The Australian people and small business owners need to know that their savings, whether for mortgages or quarterly tax payments, right now are not safe if a bank faces financial hardship,” said Senator Roberts.

The disappointing and inaccurate submissions from Treasury and APRA claim there is no provision for a bail-in of depositors’ money, in spite of Australia being signatories to international agreements that demand a bail-in strategy.

“This is a blatant lie. Australians need to know that our politicians have ratified the IMF (2008) operating agreement  and the G20 financial management guidance which both clearly state that if a bank fails, taxpayers’ money cannot be used to save it (a bail-out), and instead banks must use a bail-in, which steals depositors’ money.”

The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2018 that allows banks to take your deposited money and convert to devalued bank shares, was waved through with only nine senators present.

“That Bill legalises a bail-in that international agreements demand happens. My Bill, the Banking Amendment (Deposits) Bill 2020, stops this happening.

“New Zealand has openly acknowledged the same international agreements that Australia has signed and has passed legislation that allows depositors’ money to be taken as a bail-in, so why are Treasury and APRA pretending this can’t happen here?” added Senator Roberts.

A bank bail-in has already occurred in Cyprus and Iceland and many countries now have these provisions as part of their banking system.

Only One Nation is prepared to stand against the international agreements that intrude into the lives of Australians and the banks taking our money to save themselves. “Government bonds issued for the purpose of saving a bank are a much better way to save that bank without costing taxpayers any money,” Senator Roberts stated.

Senator Roberts’ submission can be read in full here:

Senator Roberts makes submission to Bank Bail-In Inquiry
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