Sensationally, internal RBA analysis prepared in February 2011, which was disclosed for the first time yesterday following our request, found that a fee in exchange for the taxpayer guarantees could potentially raise $37.8 billion over 25 years. The current taxpayer guarantee, which covers around $760 billion of resident deposits, has no fee attached to it. In columns and op-eds over the years I have regularly advocated that the government price this subsidy.
An earlier, secret analysis of the Rudd Government's original, unconditional bank deposit guarantee prepared by the RBA and APRA in 2009 concluded that the deposit guarantee was "non-compliant" with international best regulatory practice because the absence of a risk-based fee, amongst other things, "created a high degree of moral hazard."
This previously confidential information was extracted after a multi-month Freedom of Information search process by the Australian Financial Review that involved the RBA and Treasury, and required us to grant the RBA time extensions to review (and redact) material as appropriate.
A stunning 97 pages of documents, many of which were heavily redacted, were released by the RBA yesterday at 1pm yesterday. You can read an excerpt from our exclusive Australian Financial Review story below:
Thursday, 4 October 2012
The Council of Financial Regulators recommended the federal government consult publicly on the merits of introducing a fee on banks for taxpayer guarantees on deposits, a move which would raise tens of billions of dollars from banks for the benefit they receive from the taxpayer insurance.
The resolution by Reserve Bank of Australia governor Glenn Stevens, Treasury secretary Martin Parkinson and Australian Prudential Regulation Authority chairman John Laker at a meeting last year, came after internal RBA analysis showed a fee on banks of 0.05 of a percentage point would collect $37.8 billion over 25 years.
Documents obtained by The Australian Financial Review under Freedom of Information law show a paper presented to the council on March 16 2011 estimated the major banks would bear 76 per cent of the cost of one of the options canvassed.
The 11 internal documents encompassing 97 pages of analysis around the so-called Financial Claims Scheme (FCS) were released by the RBA yesterday following the AFR’s request, as the big banks continued to hold back passing on Tuesday’s rate cut.
The previously confidential documents note more that 90 per cent of taxpayer deposit insurance schemes around the world are funded through upfront fees on banks, including in Canada, the US, New Zealand, the UK and Europe.
“The main purpose of the fee would be to ensure that ADIs [authorised deposit taking institutions] and their depositors pay up-front for the benefits they derive from the FCS (rather than just through an ex post levy),” a confidential council working group paper said. “This could help in publicly styling the scheme as a deposit ‘insurance’ or ‘guarantee’ scheme.”
Mr Stevens said in August he was “not averse” to charging banks for the insurance fee..."