Greens propose fees for bank guarantees

The Greens get a big tick of approval this morning:

The Australian Greens have proposed a tax on the big four banks for government insurance that would raise up to an extra $11 billion over the next four years.

The minor party proposes a levy of 0.2 per cent on all bank assets above $100 billion in return for the federal government’s protection to ensure they do not fail.

I can’t comment on the size of the fee though it looks reasonable enough. But this should not be called a tax. It is a fee for services rendered the banks by the Australian tax-payer.

48 Responses to “ “Greens propose fees for bank guarantees”

  1. krazy.galah says:

    Surely they just say we don’t want the guarantee and come back with begging bowl anyway as they’re about to systemically destroy the country when they fail?

    • russellsmith55 says:

      Yeah they kind of have us by the balls on that one. Maybe if there was some kind of heavy-handed mechanism (i.e. shareholders and executives suffer badly in the event of that bailout) it might encourage them to pay for it now?

  2. Phroneo says:

    I doubt this fee will see the light of day. If people wanted it they would be more vocal.

    The overall care-factor regarding this issue suggests Australians are more than happy to hand over their money when they lose their jobs and banks are in trouble.

    Perhaps we need more human stories. Many people marched and mourned over a girl who got raped and killed. People could identity and put a face on the problem. But no-one marches when millions of Australians and future generations are fleeced.

    • Lori says:

      It is a responsibility of the free media to open the discussion and to educate people who are not financially literate. The first news in the media is usually the last scandal in sport circles or the rugby match. People know what they can read in news papers, hear on radio or see on TV news. No free media – no meaningful information, but many bogans voting for bad politics.

  3. thomickers says:

    lol only an $11 billion war chest to guarantee banks.

    • JoeBlow says:

      As proposed by our watermelon chums, It won’t be a war chest though, a war chest is stashed away for a rainy day.

      Spending it as part of the general revenue stream just transfers the cost onto consumers via tax incidence and there is still nothing in the pot for when the bottomic discharge hits the rotating air movement device.

      • lol, true, but it’s no reason not to gather it in…

      • thomickers says:

        lol come claim time by any of the banks…there will be nothing in the fund.

      • russellsmith55 says:

        Lol it could make things worse – government takes the money from the banks, then hands it out as mindless FHB grants, then banks will need even more bailout money from an empty fund in the event of a crash.

      • Opinion8red says:

        All critical observations above are correct.

        Like “Tobin” taxes, this is just another bandaid non-solution.

        Risible. Fundamentally changes nothing.

      • JoeBlow says:

        Very true, it’s not like we haven’t seen incompetent ‘government by politician’ amplify systemic risk through their actions.

  4. Explorer says:

    If depositors and bond holders want government security they ought only get government returns. What would make more sense than that?

    The banks ought have an agency agreement with the government to issue government securities on demand at government set prices.

    At the same time the implied guarantee for all but depositors to say $250,000 per depositor per institution with a maximum of $1.0M should be specifically withdrawn. This ought be done in conjunction with the establishment of a clear bail in process for different classes of non-tier one capital in case of need.

    Creditors of banks can then make their choice as to whether they want a government security and a government return or a bank credit exposure at bank rates.

    The government could invest any funds it receives above its immediate needs as it sees fit including loans to banks, but limited by a prudent portfolio approach.

    Government credit only at government prices ought be the Greens mantra.

  5. Revert2Mean says:

    Vote Green, the only half-way sane option in these times.

  6. Chris Becker says:

    A good start, at least to get the ball rolling in the public mind that privately owned banks that are publicly guaranteed if they fail are a net downside to society due to their fragility.

  7. DaHumph says:

    Alleluia to the charge.

    As a small business man I know if I ask the Bank for a Guarantee to a Third Party then they sting me big. About time the government started charging for their highly valuable guarantee.

    A Bank should be entitled to say no as well – knowing that if they ever do require a bailout then clearly they are insolvent so all shareholders and Bond Holders in that Bank would lose their money i.e. 100% equity goes to the Bailor/Government. Then its up to the Bank to decide and then explain whether they choose to get the Guarantee or have their shareholders risk losing the lot.

    I like it!

  8. Jack says:

    I like it as it actually promotes competition.
    Personally I would prefer a new model CBA based on the original 1913 version.

    • Sean G says:

      The cartel always had a passionate hatred for that model so I’d say it’s probably it way to go. Didn’t the original bank get the trans-continental railway built? We badly need someone to do big infrastructure like that right now.

  9. Mav says:

    It is certainly a more transparent proposal compared to the bank slush fund to be set up by unelected officials in the RBA.

    Go Greens! Keep the ball rolling. Propose a bill and get Labor and Coalition to vote against it – would do a world of good to their popularity when they side with the banksters.. NOT.

  10. 3d1k says:

    Gosh. They must have only recently have heard of government guarantees to the banks…where have they been?

    • Opinion8red says:

      Where have you been? There’s been a “divorce” ol’ son. And the great September Singles Ball is coming up. Gotta paint some new lipstick on this pig.

    • AB says:

      So you’re against the banks paying for their guarantees?

      • DrBob127 says:

        of course not, he just trying to throw some political mud.

      • DrBob127 says:

        sorry, not meant to sound like a rebuke.

        just saying that 3d never lets an opportunity go by to slur anyone other than the LNP.

      • 3d1k says:

        Sorry Bob, it is not meant to sound that way. It is just that there is so much to criticise when it comes to the parties in power.

        Personally I, like the Labor Party, would gladly see the end of the Greens, the mosquitoes of Australian politics. I don’t like the Gillard/Howes union and have said so. I don’t like the Liberal’s commitment to the extended paid parental leave scheme and have said so.

        My views along with a handful of others who comment here at MB, are not of the green left however I generally try to express my opinions politely.

        Diversity!

      • 3d1k says:

        A final thought Bob, not mine, Mao’s:

        “I like to deal with rightists. They say what they really think – not like the leftists, who say one thing and mean another.”

        Cheers.

      • AB says:

        So 3d1k, are you in favour or against the banks paying for their government guarantee?

        Either you disagree with the idea or you should praise the Greens for raising it.

        “…where have they been?” might apply to the Greens on this issue but “where the hell are they still?” applies to all other parties.

      • 3d1k says:

        Apologies AB, my reply to you lost in the ether!

        Frankly I thought the banks did pay a modest fee for the guarantee. I am no expert on the matter and do not know if the fee is reasonable and/or sufficient.

        I think it fair that a fee be paid for the guarantee. I am sure any other sector which required similar protection would be expected to pay a fee for the provision of service.

        In theory a bank could decline to participate in the guarantee scheme so in a sense there is no coercion involved.

        I question the Green’s timing for a number of reasons, some of them alluded to by Op8 above.

        As for the other parties – mate – this is an election year!

      • AB says:

        “Apologies AB, my reply to you lost in the ether!”

        No worries – it can be hard to keep track of these things.

        “Frankly I thought the banks did pay a modest fee for the guarantee. I am no expert on the matter and do not know if the fee is reasonable and/or sufficient.”

        They did for the large deposit guarantee (> $250,000 – http://www.guaranteescheme.gov.au/qa/deposits.html) which has since ended but this seems to be a fee for the “too big to fail” guarantee for which there is no charge and seems to only extend to the Big Four according to the ratings agencies.

        “I question the Green’s timing for a number of reasons, some of them alluded to by Op8 above.

        As for the other parties – mate – this is an election year!”

        No doubt, but surely that should mean more praise for the Greens if you do agree with the idea. I’m far from a Nationals supporter but I’d be happy to praise them if they came up with an idea that I supported.

    • Mav says:

      Greens have been on this for years. Here is an example..

      http://greens.org.au/content/adopt-financial-transaction-tax-global-initiative-brown

      And there is more.. http://greens.org.au/search/node/IMF

      Now tell me where have you been, 3d1k? Don’t tell me.. I know you and a bunch of astroturfers have been busy.

  11. pithoneme says:

    Under the current regulatory approach this would just get passed back onto customers one way or another. We had our moment to reform banking 5 years ago, it was not seized. Now we have the mother of all vested interests which will rally around the ‘national importance’ of banking and stymie any changes which would reduce return to shareholders and threaten jobs and our way of life, etc, etc. In the absence of any serious mainstream attempt to reform banking, then it is only natural that the Greens should seize the political opportunity to make hay from this.

  12. The Lorax says:

    The Greens get a big tick of approval…

    It seems you give the Greens a tick of approval more often than not. Now we know you’re not voting for Abbott or Gillard, and I’m pretty sure you’re not a Family First of Bob Katter guy, so unless there’s a standout independent in your electorate, the Greens are your only sane option*

    * Unless you live in Wentworth.

  13. tsport100 says:

    Now if the ‘protest party’ would also put forward a proposed tax on land banking…. we might get somewhere!

  14. squirell says:

    my suggestion (frmo 2 weeks ago) is that we play chicken with the banks and the govt exercises its market power as follows:
    1)send a binding agreement doc to each bank
    2) bank has 2 options and must sign one
    a) explicit guarantees AND 80% tax
    b) absolute assurance of NO guarantee AND normal tax.

    Then we’ss find out
    a) how solvent they really are an
    b) the true price of the risk the tax payer bears.

    I reckon no bank would want to go it alone. They’d take the guarantee and build ratios to a level that no longer require it. They would also be playing chicken with each other, as the ones who take the guarantee would get the deposit flow.

    The alternative is the market now prices in the cost of real risk ie higher int rates, this would also be a desirable outcome.

  15. Matt says:

    Grrr!!! I just heard some vested interest on the ABC news saying that this was a stupid idea that would hurt everyone, because it would impact on bank profits, and we all hold bank shares in our super funds.

    I yelled at the radio.

    Here it is:

    The Bankers’ Association’s chief executive, Steven Munchenberg, argues the policy would do more harm than good for the broader community.

    “We’re very concerned about the proposal, which is effectively a tax on people’s retirement savings because the majority of bank profits actually do get paid to ordinary Australian shareholders or to superannuation funds,” he said.

    “So if we’re going to be reducing bank profitability, we’re going to be reducing the payments into superannuation.”

    http://www.abc.net.au/news/2013-03-08/greens-call-for-levy-on-big-four-banks/4559758

    • squirell says:

      yup – thats stunning logic. Why dont we exempt them from tax completely as this will all trickle down to shareholder return

    • russellsmith55 says:

      What a great guy, caring about our super that much… why, he didn’t even mention how it could hurt his member’s profit based bonuses! Truly selfless.

    • aj. says:

      Only yelled at the radio – very restrained. Seriously opening up a little slice of the capital to the mums and dads was the best thing big capital ever did – so so easy to manipulate now.

  16. ExpatWatcher says:

    This should happen. At the very least we would be ahead of the curve experienced in the US when they needed to bail out all and sundry financial institutions with TARP.
    Any funds generated must however be ring fenced from the governments coffers, to accumulate and be used as the bail out vehicle when and if required.
    A Super Profits tax – aim the spot-light at more than the miners.

  17. Alex Heyworth says:

    Seems to me it suits all the parties involved to keep the guarantee on an informal, no fee basis.

    The banks like it because they get a better credit rating, cost-free.

    The government likes it because the guarantee is not written down, hence can be repudiated/modified/applied with whatever strings it likes, depending on the particular situation at the time, including the size of the bailout needed and the state of the government’s budget.

    The people like it because ultimately, it means they get lower interest rates when they borrow and because they feel secure that the banking system is backed by the government as a last resort.

    The reasons why the government like the situation the way it is are the reasons this initiative will go nowhere.

  18. aj. says:

    This is well over- due – the aussie banks have THE cushiest gig around. A fee based on profitability is the go.

  19. Jud says:

    socialise them all
    no way around it