From the AFR:
The Coalition has deferred a promise to adopt Labor’s $733 million tax on bank deposits and, instead, is set to refer the policy to its inquiry into the financial system to be conducted next year.
The banking sector said it was aware the levy proposal would be sent to the inquiry and welcomed the development as an opportunity to argue further against it ever being adopted, an outcome which a senior government source said was a possibility, depending on what the inquiry recommended.
…On Wednesday Mr Munchenberg told The Australian Financial Review the banks remained as opposed as ever to the impost and the first preference was for Mr Abbott and Mr Hockey to abandon the idea.
“It was dropped on us from a great height without any consultation or chance to question it,” he said.
He said referring the levy to the inquiry was an opportunity to have a proper policy debate against the measure which was recommended by the Council of Financial Regulators, comprising the Reserve Bank of Australia and the Australian Prudential Regulation Authority.
“We would like to see why the regulators think it’s necessary and we would like to put a counter view,” he said.
Yada, yada, yada. A sensible enough decision provided the Hockey Inquiry committee itself is sensibly constituted. The deposit insurance levy – not tax – is woefully small and should become a part of a suite of far larger charges aimed at reducing the moral hazard rampant across the liability side of the banks’ balance sheets.
Thankfully, that appears to be what is being contemplated by the Department of Finance. From Banking Day:
Analysis conducted by the Department of Finance, produced before the election, contemplates a levy at twice this level and uses the higher level as the basis for the forecast of a $19 billion fund.
The department also offers more analysis on the rationale for the levy and its impact on the industry.
“As the four major banks make up around three quarters of ADI deposits, the major banks will contribute the most to the fund.”
“However, the levy will have a higher proportionate impact on small ADIs. This is partly due to FCS protected deposits making up a higher proportion of small ADIs’ funding when compared to the major banks.”
The department observed that “ADIs do not currently pay for the right to offer explicitly guaranteed deposit accounts under the Financial Claims Scheme. They benefit from free insurance that is not available to other entities (such as finance companies and managed funds).”
“The Government is not compensated for the insurance it provides through the FCS.”
Somewhat controversially, the regulation impact statement goes on to say: “In addition, systemically important ADIs do not pay for the benefits they derive from the market-perceived implicit government support.”
Basically, you currently guarantee every loan that the major banks take out at next to no charge. If the inquiry does not address that front and centre you’ll know the fix is in.
