This is just the annual subsidy associated with the retail deposit guarantee that exists today (you need to multiply several basis points by just under one trillion dollars). It does not reflect the fiscal subsidy provided through the RBA's liquidity facilities, which are many and varied, the too-big-to-fail credit rating upgrade the major banks recently received, or the benefit of the Commonwealth's willingness to explicitly guarantee wholesale debts (or funding) during crises. But here is an interesting Q and A...
Mr BUCHHOLZ: I am fine with profitability, but it is hard to argue that it is okay for us to be about profitability and at the other end of the spectrum try to create the argument of, 'Boo hoo, we're doing it tough; we have to move on a different trajectory of monetary policy.' How does the government bank guarantee work? I probably did not even say that correctly, but how does that guarantee work?
Mr Stevens: There is a guarantee for deposits in effect. Nobody remarked on the fact that the cap was wound back from $1 million to $250,000 only a couple of weeks ago. That passed without comment or drama, which is good.
Mr BUCHHOLZ: There were probably other things on some of the political leaders' minds.
Mr Stevens: There appears to be other news around, yes. As to how it works, it is technically called a financial claims scheme. Should a bank fail, you would get your money very quickly up to that capped amount. The $250,000 covers almost all people, at an individual level. In effect it functions a bit like a guarantee. At a technical level, without going into too much detail, if some institution is put into administration by APRA then the financial claims scheme would come into operation. The banks assets would be recovered in the wind-up to pay out the creditors, but in the interim the scheme would step between the depositors and the wind-up process and say to the depositors, up to the $250,000 cap, 'Here is your money, so you can go and buy your groceries.' You would almost certainly always get your money, but it might take quite a long time. People need it quickly, and the whole point of this was early access up to that cap. That is how it would work. Then the scheme would recover those funds from the wind-up of the institution. It is extremely unlikely that the scheme would fail to be repaid in that process.
Mr BUCHHOLZ: Has the RBA put a value on that for the banks? Do they pay for it?
Mr Stevens: No financial institution that has the financial claims scheme applicable—which is all deposit takers, not just large banks but all ADIs—pays for it. They do not pay a fee for it.
Mr BUCHHOLZ: Has the RBA put a price on it—on the value of that security or insurance?
Mr Stevens: We have worked out what the fee should be, but we have not done a formal calculation of that. I suspect that if you did do a calculation you would end up with a small number of basis points.
