Is Our Money Safe in Australian Banks?

isidore12 on 29/03/2018 - 10:00
Last edited 29/03/2018 - 10:39 by 1 other user

Australian banks have an important size of interest only mortgages, money lent to real-estate speculators who are heavily leveraged (for $1 they invest they gain (or lose) few dollars).

The real-estate is already going down by 15%, banks stopped lending money to these investors, and the royal commission will certainly enlighten that banks have taken a lot of risks (similar to the subprimes).

If speculators can't pay back their mortgages and banks are at risk to be bankrupt, who is going to pay?

So I am really worried that any money in Australian banks is not that safe, and if things turn for the worst, normal people, like you and me, are going to pay for banks' mistakes.

Your thoughts?

Financial

Comments

    • ebayer007 on 29/03/2018 - 10:09
      +6

      The Australian Government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI.

      The cap applies per person and per ADI. So if you have $250,000 with one ADI and $250,000 with another, then both of your deposits are guaranteed. If you have more than $250,000 with one ADI then only up to $250,000 is guaranteed.

      • dcep on 29/03/2018 - 10:15
        -3

        defo more than 250k in HL offset acct

      • thord on 29/03/2018 - 10:28
        +4

        There are 2 very important caveats to the $250,000 guarantee:

        1. ADIs can often include multiple banks, or in other words, multiple banks may be under the same ADI. So for example I believe ubank and NAB are both a single ADI as ubank is owned by NAB - double check this example, but it's certainly true for a number of banks out there.
        2. The $250,000 guarantee is not absolute. The government have set a limit on the payments to each individual ADI. Each ADI can have a maximum payout of $20,000,000,000. Now, imagine some of the large banks and their large numbers of depositers. If there's a huge crisis, and a large bank goes under, the guarantee may not fully pay out, because there are too many depositors and $20 billion isn't enough to cover it (for example an ADI with 1 million customers each with an average $30,000 deposited.

        If such a bank failed, under the guarantee you would only get 2/3 of your money back from the government guarantee. So if you had $250,000, you'd only get $166,666. If the total deposited amount was much larger than $20 billion (as it is with many of the big banks) you're likely to get only a fraction of your money back.

        https://www.rba.gov.au/publications/bulletin/2011/dec/5.html

      • Scrooge McDuck on 29/03/2018 - 11:53
        +2

        Your $250,000 might be safe, but for most people, it's a waste not to invest in something with a higher return than a savings account.

        • dcep on 29/03/2018 - 11:56
          +1

          the rich have cashed out from realestate & stocks market

          you guess what's coming ahead

        • Diji1 on 29/03/2018 - 12:02
          +5

          @phunkydude: Really? Where did they put their money? Why hasn't the property and stock market dropped because of it? Why hasn't whatever they moved their money into gone up?

        • dcep on 29/03/2018 - 12:22
          +6

          @Diji1:

          back to cash as the Feds raise the interest, parking for next opportunity

          prior to tipping point, the balloons always get passed onto poor dudes who came late to the party with leveraged big loans

    • ash79 on 29/03/2018 - 10:09

      Thats pretty useful information

  • Fergy1987 on 29/03/2018 - 10:08
    +3

    I'm willing to hold onto your money if you want - Can only give you a 0.0% interest rate though unfortunately

    • markathome on 29/03/2018 - 10:58

      OP should definitely consider this offer. But, if for some reason you don't trust Fergy1987, I'm willing to do the same. I promise no issues provided you don't want your money back.

      • Fergy1987 on 29/03/2018 - 11:53

        See this is where I provide a better service :P - I will give the money back and just use it to offset my mortgage until you want it back :P

    • isidore12 on 29/03/2018 - 11:04

      ha ha ha…

      I'll think about it

      • LUTSlit on 30/03/2018 - 20:29
        -3

        Don't be silly please

  • dcep on 29/03/2018 - 10:09

    somewhere after 2008 gfc , AU Gov confirmed that whatever happens, they'll bail out the Big 4s

    so if you scared then stay with the Big 4s

    • JIMB0 on 29/03/2018 - 10:17

      We've had a change of government since then.

      • dengziyi on 30/03/2018 - 20:02
        +1

        Government policy regarding this matter will be more or less the same. Australia's experienced first hand the benefits of government intervention, compare it with America which tried to reduce the state's power in the economic sector.

        The banks are fairly well regulated here, if the government keeps a grasp on them, then it'll be likely that government will rarely, if ever, have to bail them out. In the end, if they don't bail out our banks and our banks fail, then the Aus economy will also fail. No government would refuse to do this.

    • Atazoth616 on 30/03/2018 - 20:40

      In responses to the Global Financial Crisis Basel III was also introduced.

      The framework basically states banks are required to hold enough capital for them to survive one month of downturn.

      So although not impossible banks are less likely to go bankrupt.

  • Your Friend on 29/03/2018 - 10:24
    +6

    The real-estate is already going down by 15%

    ?

    • dcep on 29/03/2018 - 10:26

      definitely not national figures

    • iforgotmysocks on 29/03/2018 - 10:50
      +18

      You heard him, the entire real estate is going down by 15%.

      • altomic on 29/03/2018 - 11:01
        +14

        15%!!!

        that's nearly 30%!!

        • iforgotmysocks on 29/03/2018 - 12:11
          +8

          What?? 50%??

        • altomic on 29/03/2018 - 12:31
          +3

          @iforgotmysocks: OMG, the market is plummeting. in free fall. no one should panic sell (until I sell first). we need to stay strong otherwise our largest investment will be worth only 25% within days.

        • Rodgort on 31/03/2018 - 03:33

          @iforgotmysocks: 50%!?!?!? That's basically free! It's free real estate!

      • Your Friend on 29/03/2018 - 11:17
        +2

        prices are DOWN DOWN DOWN…. I'll let myself out

      • tomleonhart on 30/03/2018 - 20:09

        Darn. Does that mean the 1mil house I was looking at can now be had for 850k ? Yayyy !!!

    • mecind on 11/10/2018 - 13:00

      My area is still high.

  • JimmyF on 29/03/2018 - 11:06
    +1

    Do you have over $250k in cash in a single bank? If not, you're fine…. move on.

    • iforgotmysocks on 29/03/2018 - 12:12
      -3

      I have all my money invested in high end european vehicles.

      • JimmyF on 29/03/2018 - 13:26

        Well you're silly then

        • iforgotmysocks on 29/03/2018 - 13:28
          -4

          You'll have egg on your face when I am the head of Westpac.

        • JimmyF on 29/03/2018 - 15:04

          @iforgotmysocks: yeah nah……. westpac will be the ones with eg on their face!

        • iforgotmysocks on 29/03/2018 - 16:08
          -1

          @JimmyF:

          I accept your apology

  • original15 on 29/03/2018 - 12:03

    Sure you’ll find there is still plenty of investor lending, despite increases to interest only mortgages

  • garetz on 29/03/2018 - 13:39
    +7

    They brought in new bail-in laws specifically because of this situation, which in effect nullifies the $250k guarantee as worthless. What happened in cyprus is an example of bail-ins at work.

    http://cecaust.com.au/releases/2018_01_30_Warning_to_MPs.htm…

    It has already passed earlier this year quietly.

    https://www.change.org/p/12971435/u/22389724

  • littlemisslovely on 29/03/2018 - 21:30

    Does anyone know what happens with the guarantee and offset accounts?

    Eg say a $1m loan but $300K in an offset meaning only $700K owing on house… but if the banks collapse will only $250K of the $300K be covered - or because it’s paying ‘off’ a loan will it balance out the loan and not be touched?

    • Hector on 30/03/2018 - 09:28
      +1

      Mortgages are different because there is a secured asset against it. Remember the bank technically holds title to your property until your mortgage is gone.

      If you’re worried about the Australian banking sector (personally I don’t think you should.. royal commission is a public spectacle and will harm share price more than banks ability to remain a going concern) then:
      1/ stick to $250k per ADI (ie UBank and NAB are one) to diversify
      2/ pay down mortgage sufficiently to accomplish #1

    • OzzyOzbourne on 30/03/2018 - 20:15
      +2

      They'll take your $300k snd you still owe $1mil lol

    • ialam99 on 31/03/2018 - 07:39
      +1

      both loan and offset is against the same security and the same institution. so if the bank goes bust, the liquiditator would need to sell both loan and offset to the same party…and in the interim period I would take advantage of the choas and stop paying my monthly mortgage.

      but more importantly, am I the only battler on ozbargain? everyone else seems to have $250+ in cash that they need to worry about how many accounts they have…

    • Slippery Fish on 31/03/2018 - 09:36

      The 300k would be taken from your loan at which point you'd need to refinance 700k of loan.

  • nebula98 on 30/03/2018 - 08:51

    How can you trust paper money, who knows how much has been printed ,especially in usa,in gold and silver I trust ,every one should have 10% of their net worth in gold and silver.
    Now days it is not even printed money but ones and zeros on a hard drive somewhere, look at how easy it would be for the banks or government to restrict access to your money,

    • FatBlanket on 31/03/2018 - 09:33

      All my money is in gold. Rose gold to be specific.

  • chumlee on 30/03/2018 - 09:09
    +3

    There is no way the government will let one of the big 4 banks go under.

    State governments don't even let the shitty ones fail such as pyramid for example

    • [Deactivated] on 30/03/2018 - 12:23

      State Bank of South Australia?

      • chumlee on 30/03/2018 - 12:52

        Government paid all depositors their money as was government owned

        • [Deactivated] on 31/03/2018 - 21:59

          But the bank failed, contrary to your original statement.

        • chumlee on 01/04/2018 - 08:06

          @4sure: no I said go under which means everyone loses their money. That's political suicide.

          Also the big 4 are large corporate/commercial lenders and if the government didn't bail them out they could call on their loans which would have a ripple effect through the economy and no doubt cause a recession

  • nebula98 on 30/03/2018 - 13:26

    Never heard of hacking,card skimming or great depression, history repeats
    Networks go down, see how much money you can get out if network or atm go down,solar flare could kill all electronics
    Gold and silver have been money for thousands of years and have real value…

    • Slippery Fish on 31/03/2018 - 09:33
      +1

      Actually they only have value because we give it value. Otherwise it's just soft shiny metal.

    • FatBlanket on 31/03/2018 - 09:34

      Barely used to be good for trading, let's put all our money in barley.

  • OzzyOzbourne on 30/03/2018 - 20:12
    +1

    No, they can get robbed any time.

  • LUTSlit on 30/03/2018 - 20:30
    +1

    Australian banks are fine. You can put it in my dollarmite club.

  • peterpeterpumpkin on 30/03/2018 - 21:23

    Just felt I should emphasise that an ADI can have several brands and you won't be covered if you have $250,000 in NAB and $250,000 sitting in Ubank, for example. You still have something like 177 ADIs to choose from so the average multi-millionaire on OzBargain is sweet.

    I hate being the guy that always points this out, but laws change. All the time. And I'm not talking about the many, many revolutions we learnt about in history class. You can read up on why the (originally much more generous) protections were initiated during the GFC in this article.

    The government can withdraw the current guarantee at any time (maybe giving you 3 years more to soften the blow) but in a cashless society there are much faster ways to get a hold of your savings (e.g. negative interest rates).

    • muncan on 31/03/2018 - 09:49

      Negative interest rates? I’ll be taking out some sweet loans when that happens.

  • ozzpete on 30/03/2018 - 22:47
    -1

    Invest your money in something with a constant and stable value, such as gold or eneloops :)

    • Curiouscat on 31/03/2018 - 11:30

      Or may be managed funds with good track record of returns?!

  • Benny33 on 31/03/2018 - 09:20
    +2

    The government can insure your deposit because they can just print the money if they need to. However that does not mean you'll have the same purchasing power as you did previously. You may get your $100,000 back, but it may only purchase $90,000 of stuff. Best thing to do is spread your risk across multiple asset classes. Cash is always important to have in a portfolio as it will protect you during deflation. Have some in the banking system and some outside (i.e. safety deposit box). Stocks, land, bullion (gold and silver) and art will maintain your purchasing power during inflation.

    Jim Rickards - The Road to Ruin is great book to read on this topic.

  • FatBlanket on 31/03/2018 - 09:36
    +1

    All my money is in gold and silver. That way when the economy collapses and the government is overthrown and there are riots in the streets and everyone else is starving I'll still be able to pop down to my local Woolies and get bread and milk with my gold pieces.

    • Slippery Fish on 31/03/2018 - 09:45

      Till the starving Rob you lol

  • jace88 on 31/03/2018 - 10:33

    If you have >$250k then plenty of offshore institutions will entertain you.

  • narbe on 31/03/2018 - 12:09

    https://www.macrobusiness.com.au/2017/01/wont-rba-kill-clf/

    This is why banks in Australia are too systemic to fail.

    "
    So, ANZ, CBA, NAB and WBC each have around $50bn of their own off balance sheet mortgages sitting back on their balance sheet to protect them against a ‘liquidity event’. Then they each have around $10bn each of each other’s bonds, so NAB holds around $50bn of WBC/ANZ/CBA bonds etc.

    So the RBA will be forced to sit on about half a trillion dollars of Aussie bank paper ($100bn each plus a little more for CBA and WBC, plus Suncorp, Bendigo etc).

    Do an investigation on how much REAL systemic debt is sitting in the banking system – the RBA has made itself lender of last resort to over $500bn worth of debt. "

    Pretty much sums up that article , the lender of last resort ie. RBA has guaranteed 0.5 Trillion dollars, wont last forever but will prevent your average bank run.

  • Inhere6 on 29/09/2018 - 00:37

    This may throw a spanner into the works!
    https://is.gd/VbZ9us

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