Australia's Bank Guarantee Scheme - Are You Covered?

At the May/June Senate Estimates, I asked the Australian Prudential Regulation Authority (APRA) about their accountability and responsibilities for financial services and then probed further into depositor guarantees. I wanted to try and establish whether Australians' savings are secure in the event of a financial crash. Have a listen.

APRA made the point that Financial Claims Scheme (FCS) is really a last resort. Australian banks and financial institutions are required to have practical plans in place to ensure they can get up and running again in the event of a financial crisis. If that were to fail, however, account holders would be covered for the first $250,000 of their deposited funds per institution.

What this answer failed to mention is that the Financial Guarantee Scheme (FGS) only kicks in once the bank fails. At this point, the bank would have been able to use bail-in provisions to use depositor’s funds to save themselves.

The FCS is also unfunded. The government has not put any money aside to fund the scheme — there is a limit of $20 billion per bank, which is only 10% of what would be needed for just one of the Big-4 banks alone. The Treasurer is not required to trigger the FCS if they don’t want to spend the money.