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How Safe Is Your Bank Deposit In Australia?

Posted by John Adams - Chief Economist at As Good As Gold Australia on

Throughout history, humans, regardless of society, have always sought financial reassurance in such trouble and uncertain economic times and now is no different.

COVID-19 and the repeated economic lockdowns have caused catastrophic economic damage and turmoil in world financial markets.

The unprecedented amount of fiscal and monetary stimulus (i.e. money printing) at the same the world has the biggest debt bubble in world history has triggered significant concern, and in some cases panic, about the relative safety of different forms of financial wealth whether they be in the form of property, shares, bonds and even bank deposits.

A New Banking Crisis?

The safety of banks and bank deposits are coming into sharper focus as a second wave of COVID-19 starts to spread throughout the world.

Only last month did a new study out of Europe, as reported by the Irish times, suggest that Europe may face a banking crisis if the coronavirus stretches into 2021.

See the story via the following link:

Moving forward, if:

  • economic stimulus was to be withdrawn; or
  • if the scale of defaults resulting from the current global recession were to overwhelm the global financial system that would make economic stimulus redundant

then many banks around the world would experience catastrophic losses, insolvency and potential bankruptcy.

If a regional or global banking crisis were to ensue, saving the banks (especially Globally Systemically Important Banks) will be the most pressing priority of policy makers.

The reason being is that if policy makers fail to save the banks, the global debt bubble would collapse leading to the biggest depression in world economic history.

So the question becomes how will they endeavour to save the banks who have massive loan books and who are exposed to complex financial derivatives?

In the years after the 2008 GFC, global policy makers realised that taxpayers of individual countries don’t have enough money to bail-out the banks if another financial/banking crisis were to occur.

Thus, they needed new tools to overcome this problem of banks who are too big to fail. One of the tools which they designed is a policy tool called ‘bail-in’ – the process of converting the liabilities into shares for a financial institution.

Unbeknown to most Australians, your bank deposit is recorded as a liability on the banks’ balance sheet, meaning that your deposit is technically a loan to the bank.

This point is lost on many Australians, because we have been raised to believe that the bank is a safe custodian of our money, rather than the actual legal reality which is that depositors are creditors to the bank.

Thus, in the context of bail-in, bail-in actually means the literal confiscation of bank deposits in exchange for bank shares in order to recapitalise the bank.

A modern-day bail-in precedent occurred in 2013 when the Bank of Cyprus confiscated 47.5% of bank deposits above 100,000 euros in exchange for shares at the Bank of Cyprus. Depositors who went through this bail-in process suffered catastrophic financial losses and, in many cases, never recovered financially.

Can Bail-in of Retail Bank Deposits occur in Australia?

In the years since the 2008 GFC, the Australian Government under Kevin Rudd, Julia Gillard and Tony Abbott committed Australia to a global bail-in framework developed by a subsidiary organisation under the G‑20 called the Financial Stability Board or FSB.

The FSB’s global framework entitled the Key Attributes of Effective Resolution Regimes for Financial Institutions , calls for the ability for government and prudential regulators to bail-in (or confiscate) retail bank deposits (specifically outlined in Key Attribute 3.5) if a bank is insolvent and on the verge of bankruptcy.

The Federal Parliament enshrined this framework into Australian law in February 2018 through the passage of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 which made extensive changes to the Banking Act 1959.

Given the public outcry at the time regarding the risks to Australian deposits, the Australian Government gave public assurances that:

  • there was no intention to bail-in retail bank deposits in Australia, despite internationally committing to a global framework which requires it; and
  • the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 did not provide the Government with the power to order of bail-in retail bank deposits.

These assurances then as they do now seem flimsy given that other developed countries around the world have legally incorporated the ability to bail-in retail bank deposits with the most transparent bail-in regime being New Zealand via their Open Bank Resolution policy.

However, in September 2018, I personally started looking into this issue and discovered a legal loophole which was never discussed or considered by the Federal Parliament.

I began speaking publicly about this legal loophole in October 2018 on YouTube with my co-host Martin North on his YouTube channel ‘Walk the World’ in a special 5-part series on bail-in. We have continued to discuss bail-in in 2019 and 2020 through our new YouTube channel – In the Interests of the People .

In several interviews on the As Good As Gold Australia YouTube channel, I have also discussed the risk of bail-in with Darryl and Brian.

In 2019, an independent solicitor from Sydney called Robert Butler confirmed that the legal loophole which I identified had validity and that there was a legal pathway for the Australia Government via the Australian Prudential Regulation Authority to order a bail-in of retail bank deposits independent of the wishes of the banks, the bank’s creditors or shareholders.

Given this confirmation, I have taken a number of financial steps to protect myself and my family from this risk.

Closing the Current Legal Loophole

Fast forward to today and Queensland Senator Malcolm Roberts has introduced the Banking Amendment (Deposits) Bill 2020 into the Australian Senate which would amend the Banking Act 1959 to deny the Federal Government or the Australian Prudential Regulation Authority the ability to order a bail-in of retail bank deposits by closing the legal loophole which I identified in 2018.

This legislation is now subject to a Parliamentary inquiry which is being conducted by the Senate Economics Legislation Committee. The inquiry commenced on 10 June 2020. Details about the inquiry can be found at the following link:

Last Friday, I lodged my 32-page submission to the inquiry for their consideration.

Of those submissions advocating for the proposed legislation, my submission is the most comprehensive and definitive account of the policy, legal and historical issues surrounding the ability of the government to order the bail-in of retail bank deposits.

I have gone to great lengths to show the problem with current federal law and why the proposed legislation goes a long way to fixing the issue and giving Australian depositors confidence that the events of Cyprus 2013 cannot happen in Australia.

With the submissions period now closed, we wait to hear what are the next steps from the Senate Economics Legislation Committee, especially whether public hearings will be scheduled and whether I will be invited to testify at those hearings.

The Committee is required to report back to the full Senate on 10 August 2020 and thus in the coming four weeks, Australian depositors we get to witness up close what is the real intent of government policy and how much can you trust the Federal Government and the banks to do the right thing by the Australian people.

Don’t be Fooled by the $250,000 Deposit Insurance Scheme

It is critical to note that many Australians who have significant sums of money in the banking system believe that their money is safe from the risk of bail-in given the Federal Government’s $250,000 deposit insurance scheme (which is officially called the Financial Claims Scheme).

It is crucial that you understand that this is a falsehood.

The $250,000 deposit insurance scheme only kicks in when an Australian financial institution (i.e. bank, credit union and building society) has become bankrupt and the insurance is legally activated by the Federal Government.

Alternatively, the purpose of bail-in is to recapitalise the banks that would prevent a declaration of insolvency and bankruptcy, thus bail-in, in the Australian context, is a policy tool which helps the Federal Government avoid paying deposit insurance.

The Value of Physical Gold and Silver

As I continue my fight with the Federal Government to eliminate the legal risk of bail-in of retail bank deposits in Australia, the question which many Australians have asked me over the past 2 years as they learn about this issue is how can they protect their life savings which may be currently sitting in an Australian bank account?

Given that a bank deposit is legally a loan to the bank, the best option which I personally pursued was to withdraw my life savings from the banking system and hold it in a form that was going to maintain its purchasing power over the medium to long term.

This is one of the main reasons why I have personally been buying physical gold and silver over the past four years and why I have worked with As Good As Gold Australia as their Chief Economist since July 2018.

As many international experts will tell you, the value of owning physical gold and silver bullion is that there is no counter-party risk, there is no risk of financial insolvency or default by another entity whether it be a corporation or government in the case of shares and bonds or banks in the case of deposits.

Nevertheless, each individual Australian is ultimately responsible for the conduct of their financial affairs, including assessing financial and legal risk and how to deploy capital.

Want to Learn More?

For those who wish to obtain a copy of my full 32-page Senate submission and obtain a deep understanding of the risk of bail-in, feel free to e-mail me at and I will send you a copy that you can read at your convenience.

If any As Good As Gold Australia customer would like to have a discussion about bail-in and what it may mean for you, I am happy to make myself available and have a discussion via a brief phone call. Just e-mail me and we can make it happen.

The next 4 weeks will be illuminating as to what is the real agenda of the:

  • Federal Government and its economic institutions such as the Treasury, the Reserve Bank of Australia and the Australian Prudential Regulation Authority;
  • Australia’s commercial banks; and
  • global elite institutions such as the Bank for International Settlements, the International Monetary Fund and Financial Stability Board.

I trust that in the end the truth will prevail.