From The Gowdie Letter (AUSTRALIA)-
The recent market jitters and the uptick in gold have once again generated the most asked question from you. ‘How safe is our money in the bank?’
Everyone acknowledges the government’s $250,000 deposit guarantee is in place. However, there are fears the government may not be able to honour its promise. Or, if it does, in what form will the guarantee be invoked?
These fears are not without foundation.
The deposit guarantee (as the legislation currently stands) is limited to $20 billion per institution. The big four each have deposits in the hundreds of billions of dollars. Not hard to do the maths. There’s no way $20 billion is anywhere near enough to protect all deposits.
Ironically, the smaller credit unions, banks and building societies — with deposit bases in the millions or low billions of dollars — would be totally covered by the guarantee. That runs counter to the perception of them as much weaker institutions.
Personally, we have money spread around large, medium and small approved deposit institutions. A form of deposit guarantee diversification. However, institution diversification is of no consequence if there is a blanket freeze on withdrawals.
In looking at the best and worst cases, the best case is the Australian banking system is robust enough to handle an economic shock — one that is greater than the GFC. Perhaps deposits in excess of $250,000 may be confiscated as part of a bail-in, but balances under $250,000 are safe and accessible…