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Monday, 13 October 2008
Page: 5755


Senator WILLIAMS (2:33 PM) —My question is to the Minister representing the Treasurer, Senator Conroy. In view of the federal government’s guarantee of deposits held by banks, credit unions and building societies, will the same guarantee be extended to other financial institutions, including debenture-issuing companies that are securing against real properties and are at arm’s length?


Senator CONROY (Minister for Broadband, Communications and the Digital Economy) —As I have mentioned, on Sunday the Prime Minister announced that the Australian government would guarantee all bank deposits in Australian banks, credit unions and building societies. The Prime Minister also announced that the Australian government would guarantee term wholesale funding by Australian banks. The government has been working for several months on the details of its Financial Claims Scheme for depositors. We have now decided that the best approach is to cover all deposits, whatever their size, in all Australian banking institutions, for three years. This measure puts our banks on a similar footing to other banking systems around the world. It remains the case that our banks are strong and well capitalised. But the government understands that many Australians observing developments overseas may be concerned about their savings. Our job, in this time of unprecedented turbulence, is to ensure that the confidence in Australian financial institutions is maintained.

The guarantee will cover all the deposits of Australian-owned banks, Australian subsidiaries of foreign-owned banks, building societies and credit unions. APRA advises that the Australian deposits that are covered by the guarantee on deposits are around $800 billion. The government does not expect that it will be called upon to pay out these guarantees. Our banks are strong and well capitalised. No depositor of an institution supervised by APRA—or, before that, the Reserve Bank—has ever lost money.

The following will be covered: deposits held in Australian-owned banks, Australian subsidiaries of foreign-owned banks, building societies and credit unions; any type of deposit account, savings accounts, cheque accounts and term deposits; deposits held by businesses, household companies and trusts; and deposits held in any currency. It does not include deposits of institutions not regulated by APRA. It does not include bank bills or certificates of deposits; these will be covered by the wholesale funding guarantee.

The government does not expect that it will be called upon to pay out these guarantees. As I have said, our banks are strong and well capitalised. Deposit-taking institutions are required to hold sufficient capital against their deposit liabilities, and depositor preference means that depositors have the first call on an institution’s assets in the event that it fails. This means that it is highly unlikely that depositors’ funds could not be recovered through the liquidation of the failed institution. In the event of a failure, the government would provide depositors with 100 per cent of the funds through the Financial Claims Scheme. APRA, as the scheme administrator, would then look to recover those funds in liquidation.

The Prime Minister also announced on Sunday that the Australian government would guarantee term wholesale funding by Australian banks. This step will ensure that our banking institutions have the best possible access to global capital markets. Developments in global financial markets over the past year have made it more difficult for our financial institutions to raise funds— (Time expired)


Senator WILLIAMS —Mr President, I ask a supplementary question. In all seriousness, this really is an important issue. My supplementary question goes to these debenture-issuing companies. I know of one group that has lent up to $1.3 billion, 40 per cent of it to agricultural properties. They need to have some assurance that their investments are safe; otherwise, those investors will withdraw their money and people will simply have to sell up or pay up. Will the minister look at these debenture-issuing companies to see that they can get the same guarantees as banks, building societies and credit unions?


Senator CONROY (Minister for Broadband, Communications and the Digital Economy) —As I have said, the government has guaranteed the deposits in Australian-owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years. The guarantee does not extend to debenture issues. Following a number of high-profile corporate collapses in recent years, the government acted earlier this year to improve retail investor protection in this sector through improved disclosure, investor education and access to appropriate advice. These changes have been implemented through ASIC’s regulatory guidance. Legislative amendments are also under consideration. Considerable work has already been undertaken by ASIC in investigating, collecting and examining evidence to enable it to formulate and quantify claims for disciplinary action against relevant directors— (Time expired)