The AFR is reporting that the government is set to announce long overdue charges for backstopping banks:
The Australian Financial Review has learned that the government’s economic statement, set to be released Friday, will contain a deposit insurance levy as recommended by the Council of Financial Regulators, which will raise funds to underwrite any Australian bank should it need assistance in the future.
The proposed levy is between 0.5 per cent and 1 per cent on protected deposits with the level set at $100,000. Presently, banks pay the government a fee to guarantee deposits over $250,000.
…The source said while the money collected would count as revenue, should the fund ever be drawn upon it would count as expenditure.
Here we have another admirable policy move that is going to be framed in a political context over the budget instead of within a frame of reference of limiting moral hazard and increasing financial stability. The interests-adoring AFR is already doing it.
This is a most welcome measure that is too important to be slapped together in a mad scramble for a pre-election surplus. Where is this Government’s policy process? What happened to a Wallis-style inquiry first?
There is also the question of whether or not such a fund should be on the government’s balance sheet. In the US the Federal Deposit Insurance Corporation runs as an independent entity with rules that demand it keep a certain percentage of total deposits in its fund plus having unlimited borrowing power from the US Treasury. It sounds like the Australian version will simply be an office inside Treasury or APRA with less separation which may reinforce perceptions of convenient policy-making.
Don’t get me wrong. I am all for this measure if it is done right. I will reserve judgement for now. Stand by for major bank PR backlash.
