A week after Standard & Poor’s downgraded Bendigo and Adelaide Bank, Bank of Queensland and 21 other smaller banks due to rising property market risks in Australia, but maintained the ratings of the big four and Macquarie due to perceptions of government support in a crisis, Ms Bligh said all of Australia’s banks are too big to fail.
The notion that only the big four banks and Macquarie would be supported in a crisis “presupposes that there are other banks which the government would allow to fail,” she said.
“This is a fundamental misreading of the Australian political environment.”
During the depths of the global financial crisis, there was a 3½ week period when the federal government guaranteed all liabilities of all banks for no fee, she said. “The whole system was supported, not just the majors.”
…Ms Bligh said the ratings agencies don’t appear to understand the political imperative of maintaining confidence in Australia’s financial system and the reality, since the early 1930s, that governments have sought to resolve banking sector problems without losses to the public.
Smaller banks that have struck trouble have typically been allowed or required to merge with a larger rival (such as Bankwest in the GFC or the State Bank of Victoria in the following the 1990s recession) or received some sort of government support.
“We have to put ourselves in the shoes of a federal Treasurer faced with the financial difficulty of any of Australia’s banks. Could he or she afford to allow any bank to default on its debt obligations or to close its doors? That is doubtful because the contagion effects through the rest of the financial system and on confidence are unpredictable and difficult to contain,” she said.
There’s failure and then there’s failure. No regulator anywhere allows a decent sized bank to collapse into unruly bankruptcy. That leads directly to public distrust in the financial system and contagious bank runs. But that does not mean failures are not allowed. They are managed. When BankWest was sold by HBOS to CBA in October 2008 for a lousy $2bn, equity holders were virtually wiped out.
Yes, all banks benefited from the deposit guarantee and should likewise pay for it, a point I will return to. But it’s the majors that do nearly all of the foreign wholesale borrowing and get that guaranteed as well, with the two-notch upgrade to ratings the direct result. So they should pay twice.
The implication of Fake Premier Bligh’s fake argument is not that the little banks should not have been downgraded, it is that they should also be hit with a deposit levy.
Given Fake Premier Bligh so horribly failed the little banks in arguing against the big bank levy in the first place, she appears desperate now to be seen to be doing something on their behalf. Yet all she has done is handed the next government the perfect reason to slap a new deposit guarantee levy on the little banks while making it plain that the big bank levy should be doubled.
Little banks need a new lobby. Big banks need a new lobby head.
