Does Your Deposit Have Insurance Protection?
In light of the current economic crisis in the US and particularly the downfall of renowned financial institution, Lehman Brothers, it is understandable that depositors are somewhat concerned about the safety of their money.
There is a common misconception that some institutions here on Australian shores are safer than others. For example, the four big banks are safer that credit unions or building societies. This is not necessarily the case.
Unlike the United States and Europe, Australia does not currently have any deposit insurance regulations in place. Whilst the Australian financial industry does have an established regulatory body, the Australian Prudential Regulation Authority (APRA), there is currently no legislation that requires our institutions to pay insurance premiums. APRA regulates all Authorised Deposit-taking Institutions (ADIs) such as banks, credit unions and building societies in this country and as a result, if banks do not have insurance, neither do credit unions or similar institutions.
These regulations that exist elsewhere in the world dictate that all ADIs, must pay an insurance premium to a government-backed institution in order to guarantee all, or part, of their savings.
Whilst deposit insurance is not in practice here, there does exist some protection for depositors as under the current law they have first claim to a failed institution’s assets.
Both current and former Government parties in Australia have discussed the introduction of deposit insurance legislation but nothing has been introduced to date. Also currently under consideration is the implementation of a facility whereby Government funds would be used to make a payment to depositors of up to $20,000 immediately following the collapse of an institution. This would see any additional amounts able to be claimed once the bank’s assets were sold. This facility is intended to provide depositors with some cash upfront as it is understood that they may require cash for day to day living and may not necessarily be able to wait until the wind up is complete, or even longer if the matter ends up going through the courts.
Generally speaking, most Australians are quite unaware of the regulatory structure that operates our banking systems. In light of that, perhaps the most important thing to remember is that with or without the introduction of deposit insurance legislation Australian depositors will continue to see all deposits in any ADI treated equally.
The Accountants and Financial Planners at The Quinn Group are constantly monitoring the financial landscape in order to provide our clients with the most relevant and up to date advice. If have any queries or would like personalised advice for your individual situation contact us by calling 1300 QUINNS or click here to submit an online enquiry.