ABA says bank levy will drag down depositors

government-and-regulation/financial-services-sector/global-financial-crisis/financial-crisis/government/chief-executive/

5 August 2013
| By Staff |
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The Australian Bankers’ Association (ABA) has questioned the Federal Government’s new bank levy, saying it is unnecessary and would negatively impact bank depositors. 

The Government in its Economic Statement last week announced the establishment of a Financial Stability Fund and a levy which will gradually build to 0.5 per cent of total deposits, in order to strengthen Australia’s response to any future financial crisis, it said.  

However, the ABA said Australian banks had proven their resilience during the Global Financial Crisis, unlike banks overseas. 

“Australia is also unusual compared with the rest of the world in that it has a system of legislated depositor preference,” ABA chief executive Steve Münchenberg said.  

“This means that depositors get preference over other unsecured creditors if an ADI fails.”   

“In the event of insolvency, banks would have to burn through all their profits and capital, and nearly half of their assets, before deposits were even touched - that is a very unlikely scenario.” 

The Government’s advice in 2008 regarding large deposit guarantees had concluded that depositors should pay for it, Münchenberg said. 

“The unfortunate effect of the levy is that banks may pay less interest to savers and others with deposits, such as small businesses,” he said.  

“This comes at a time when Australians are saving more but returns are less in this low interest rate environment.” 

If any levy were introduced it should only be done so as part of a broader inquiry into the financial services sector and following further urgent consideration by the current government, according to the ABA. It said if the coalition won the election, it should repeal the decision.

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