Still more on deposit bail-ins

More good work today from Martin North to block deposit bail-ins

As we await formal responses from the regulators, I discuss Bail-In with Robbie Barwick from the CEC.

They have launched a campaign to make a change to the law to specifically exclude deposits, and they have new evidence that despite what many in Government say, Bail-In HAS been covertly legislated.

Time to write to your MP and insist they back this change!

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)


  1. What is a deposit to a bank but unsecured lending by the customer? And in any other circumstance, creditors of an insolvent entity stand in line for repayment? What’s so different about a bank?
    It’s not a ‘bail-in’ as such, but just the way any business risk is handled…

      • I thought it was a link to the Taken scene where the Trafficker says ‘nothing personal’ to Liam Neeson just before he blows him away.

    • No bail in: unpaid depositor can put bank into liquidation like any other creditor.
      Bail in: unpaid depositor’s rights to put bank into liquidation are suspended and they are in limbo.

    • People regard deposits (incorrectly) as cash. The two are conflated all the time. Plus, the fact that people can use deposits to buy things. And also, the fact that deposits are labelled “money” has confused the reality of what they actually are in most people’s minds. And I think this is where the problem lies. If the banks (and politicians) were more honest about the situation there would be less confusion. More dishonesty from the banks leading to difficult and untenable situations.

    • Looking at it another way, if banks create deposits from loans, is it really accurate to say they are unsecured creditors? It’s not like the banks need them to be able to lend.

    • The question is if depositors were made aware of this explictly would they hold as much of their savings in bank accounts. Wouldn’t want to scare them now would we. It’s all about information asymmetry.

  2. Took a look through the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 after watching the video. The essence of a banking institution is trust. How’s that going for Australia so far?

  3. At 18:15 it is mentioned that this bill was intentionally omitted from a list of bills that are reviewed at Labor caucus meetings. Democratic processes being subverted at multiple levels to sneak the bill through parliament.

  4. A bail-in is the last resort and while in history it’s happened before to do this now would be the last thing any government would do IMO. But, a tax or they’ll call it a levy is what would happen to bail out the banks and it’s just a bail in in disguise with the pain strung out over time. I’m not saying it wouldn’t happen, but it’d be curtains for any gov that went down that path and you’d get social anarchy IMO.

      • If they did that it would be really stupid. They keep tinkering with super and reducing what you can put in making a self funded super impossible for many age groups. They don’t seem to figure in that the real cost of living always gets more expensive. Medical for one is on a hyperbolic trend in some areas.

      • Politically, they could kick the can down the road for 20 years “because it will be available by the time you retire”

        but if you take cash out of people’s bank accounts right now, the screaming starts immediately.

  5. APRA lobbied for bail ins two years ago, if not then three I think. It was legislated then late in that year a while back.
    I asked after the downgrading of the big banks, my mutual bank as a matter of interest about its rating, it got very flustered and eventually I was testily informed that only their institutional investors were privy to that information.
    Hence the $250k govt guarentee and only one per person per bank. Banks can take the rest.

    • CaptainFeatherSwordsGhostLives

      250k only applies in a complete wipeout. If they decide to bail-in to prevent a wipeout that 250k guarantee doesn’t apply.

  6. Even StevenMEMBER

    Bail in of deposits. Lol. You people crack me up. I can’t believe this has even got any air time when it has been specifically denied by Treasury and APRA.

    In fact, bail in of depositors runs completely counter to APRA’s main mission of… protection of depositors.

    Yeah, you can’t make this stuff up. Or rather, you apparently can!!

    • CaptainFeatherSwordsGhostLives

      Oh, APRA and RBA said no bail-in……..must be so.
      APRAs main mission is protection of DEPOSITORS not DEPOSITS. they are mutually exclusive terms muppet.

    • Even Stevens has a point. Section 12 of the Banking Act 1959 states:

      12 APRA to protect depositors

      (1) It is the duty of APRA to exercise its powers and functions under this Division for the protection of the depositors of the several ADIs and for the promotion of financial system stability in Australia.

      It really depends on what people think a “bail in” means:

      If you think “bail in” means that an amount of deposits will be used to make good borrowers, note holders or shareholders you are living in la la land.

      If you think a bail in means that some depositors with large balances my not get every dollar back in order to ensure that all depositors get back a set amount – you are on the right track. As others have pointed out – depositors are just a special class of unsecured creditors.

      None of which has really anything to do with the deposit guarantee. Prior to this it would have taken a LOT longer for a depositor to have gotten ANY money back from a failed ADI.

      • Even StevenMEMBER

        Exactly right.

        And this is even before we’ve considered the extreme unlikelihood of it (a bank becoming insolvent) occurring particularly given provision of liquidity by RBA.

        And even if for some reason the RBA couldn’t provide liquidity (which is itself a nonsense because it can print at whim), this still leaves actions available to the government.

        I’ve never seen so much nutty discussion of something that clearly won’t happen. I’m genuinely surprised HnH endorsed Martin North’s work in this area. This is tinfoil hat stuff and does undermine the credibility of what I otherwise consider is an excellent web blog.

        Ah hell… while I’m at it, I’ll also call out one other thing that annoys me: Leith’s incessant and irrational focus on removing dividend imputation. Otherwise they are worship worthy.

  7. A ‘bail in’ will be followed by a full scale bank run, so the cure would end up being worse than the disease.

      • A bail in is supposed to freeze only a % of deposits, ie enough to make the bank whole. The risk of course is after freezing a portion of someones funds there is now incentive to withdraw the rest, and hence start a run proper.
        Therefore the bank may as well be put into conservatorship / shut down. I don’t see bail in solving the problem it claims to.

  8. reusachtigeMEMBER

    As far as I’m concerned possession is nine tenths of the law therefore if banks need to use deposits to save borrowers then so it should be. People who invest in property are the lifters in this equation.

    • You got that right the great whyts are rare and should protected at all cost risk takers are the drivers of the economy the others are meat deer in frozen in the head lights

  9. A question. What if I put money in international bank like HSBC. I know that Australian government includes HSBC in their 250k guarantee scheme but what about taking your deposit from those banks?

    • This isn’t talking about taking about the Government taking your money from banks. Apart from taxes, levies or fines, and as long as it’s not the proceeds of crime, the Government just taking your money would be unconstitional. The idea of a bail-in is that if a bank is insolvent, for the bank to hypothetically reduce people’s accounts to reduce their liabilities.

      I think it’s almost impossible that it could ever happen at all though unless the bank liquidated. If the bank liquidates, you lose your money and hopefully get it back with the $250K insurance. But if they gave depositors a haircut and kept operating, apart from being extremely leagally questionable it would also absolutely destroy any remaining trust in the entire financial system in Australia. Not only would there probably be runs across the whole banking system, you’d also see any foreign investment disappear overnight.

      • Even StevenMEMBER

        @ Bubbley

        And pray tell what currency does Malta use? I’ll give you a hint: it starts with an E, is four letters, and ends with an O.

        Why might that be relevant?

  10. CaptainFeatherSwordsGhostLives

    There is no Guarantee. It only applies to a scenario that won’t happen. That doesn’t mean they won’t take all your money though, you are an unsecured creditor.

  11. If there’s a bail in the banks won’t collapse therefore the deposit guarantee is not needed. How’s that for peace of mind.

  12. Today I’ve got a lot to do and at minute 4.40 I wishing they would get on with it.

    I need the really short succinct version to share with numbnuts on Facebook.

  13. Forrest GumpMEMBER

    Why should those with their capital in the banks be sacrificed? They are innocent.

    Why not force home owners to sell their houses and then use those funds to bail in? After all, thats what it really is for right?

    • Indeed, I will buy those cheap houses with my deposits once the time is right! Maybe Reus’s houses if the don’t stink of fish…

    • Your funds are debt. That’s the system – that’s why things “crash” after all. You can’t sell the houses to fund in a debt deflation scenario – the money/lending isn’t there. Debt that can’t be paid won’t or in this case lending to banks that can’t be paid back either won’t or the really innocent (the taxpayer) will pick up the tab. If the government didn’t pick up the tab you might find your deposits gone too that you have been ironically been lending to other housing debtors.

      IMO we’ve changed from a gold-standard of money to a pseudo-housing backed money supply. If it all crashes everyone loses. Why we ever privatized the banks is beyond me; they used to consider this stuff when considering how much housing credit they lent out with fears that it would be “too inflationary”.

    • You can also quite easily buy US bonds or US bond ETFS. Lower risk and higher returns than the Aussie banks. Also, the AUD can only go down over the next 5 years. Get your money out of the Aussie banks now!

    • ES, I broadly agree with your reading of the tone of what APRA have said HOWEVER, APRA is a captured regulator – see the RC – and this is just APRA’s views. This is not legislation, regulation or ministerial direction. All of those supersede the regulator’s views IMO.
      In your googling did you find any references to APRA’s views expressed in the doc you’ve linked being included clearly in the final legislative framework? I suspect you won’t and that’s Martin North’s angle.
      Also I’d consider that in the beautiful art of government and regulatory double speak, that APRA may indeed believe they are looking after depositors by protecting them from themselves. That is, APRA may think it necessary to bail in X% of all deposits to prevent some depositors from perpetuating a run on the bank which may have left some/many/other/all depositors with less or nothing?
      I am deeply cynical about opinions like those expressed by APRA and give much more weight to the written law albeit hard to interpret in this case.

      • Even StevenMEMBER

        The essence of your argument comes down to “APRA is lying”.

        Well I suppose there is little I can say to refute that. What I will say is that there is a fine line between cynicism and paranoia. Try and stay on the right side of it.

  14. Maybe I’m not of the opinion that everyone else is here – the deposit guarantee in my mind is the greatest housing prop of all and bail-ins are the pre-GFC normal way of dealing with the issue. Why should tax payer money be used to save someone else’s lending? I actually think people should stop kidding themselves and realize that deposits are “unsecured lending”; the money created by deposits that made housing expensive only exists because of these deposits (60%+ of housing debt is deposit financed). The “government guarantee” is another housing market distortion; just like the others this blog likes to complain about. Money is debt – your deposits are mostly someone else’s housing debt – you can’t have your cake and eat it too or in case keep your deposit while on the other side of the ledger housing debt is being defaulted on. Or conversely your deposits exist because of the housing boom mostly; the schadenfreude against housing owners/investors no matter their individual circumstance is a bit too much.

    Without the deposit guarantee housing probably would of crashed during the GFC; and some banks would of gone belly up. In fact out of all of Rudd’s housing stimulus measures I actually thought the deposit guarantee was the most powerful one. It saved us going the way of Ireland at the time and ensured depositors were still financing our banks and in turn the local housing market. We and most other developed countries don’t make anything as a country or not enough anyway – the only way we save is if someone else takes on debt.