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Government reduces cap on deposit insurance -

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The Federal Government will make permanent its bank deposit insurance scheme, but will reduce the
cap on claims from $1 million to $250,000. Consumer groups worry the change could affect
competition but the Australian Bankers Association says a high limit could raise questions about
the financial stability of Australia's banking system.

TONY EASTLEY: The Federal Government has announced it will make permanent its bank deposit
insurance scheme introduced during the global financial crisis.

But the cap for deposit insurance will be $250,000 per depositor in any one bank, which is a
quarter of the previous limit.

Consumer group Choice says there's no reason to lower the limit, but the Australian Bankers
Association supports the plan.

Timothy McDonald reports.

TIMOTHY MCDONALD: The Financial Claims Scheme ensures that if a bank, building society or credit
union goes under, its customers won't lose everything.

But as of February, they could lose anything over $250,000 and while many don't have that much in
the bank, Matt Levey from Choice is concerned that lowering the limit from $1 million could affect
competition.

MATT LEVEY: A lot of the smaller institutions - whether that is regional banks, credit unions,
building societies - actually rely on deposits which are in that medium sized range, so I guess
between about $100,000 and a million.

That is what they use to compete on products like home loans so we certainly see that anything
which can provide confidence for people who hold those medium sized sort of deposits with those
sorts of institutions is a good thing.

TIMOTHY MCDONALD: Matt Levy says the Financial Claims Scheme is a good idea but he says it is just
one of many measures the Government should put in place to ensure a secure and competitive banking
sector.

The Australian Bankers Association says the cap is reasonable when compared with limits in other
countries.

Steven Münchenberg is the chief executive. He says the change shouldn't affect competition.

STEVEN MUNCHENBERG: Well, look there is no reason why depositors should feel the larger banks are
safer than smaller banks. All banks are subject to the same prudential regulation and they are all
supervised by APRA. So all banks in Australia - big, small and international banks in Australia -
are all very safe.

TIMOTHY MCDONALD: What's more, he says leaving the limit at one million dollars could send the
wrong signal.

STEVEN MUNCHENBERG: Well, the Government made a decision at the height of the global financial
crisis to set it at a million dollars. We certainly don't believe that now things are a lot calmer
- although there is still uncertainties out there - that we need to keep it at anywhere near that
height.

So I think if the Government were to make that level a permanent decision well then, there would be
real questions asked about why they were so concerned about the banking system in Australia in the
current circumstances.

TONY EASTLEY: Steven Münchenburg from the Australian Bankers Association.