SUBJECTS: Global economy, deposit guarantee, Australian subsidiaries of foreign banks, superannuation
STEVE PRICE:
Good morning Ross and on the line is the Assistant Treasurer Chris Bowen, thanks for your time again.
CHRIS BOWEN:
Good morning Steve, good morning Ross.
ROSS GREENWOOD:
Good morning Chris, I mean one thing about the guarantee, everyone this morning, sitting down, is thinking to themselves, why has the government had to guarantee my bank account?
The question that comes up of course is that you have told us for weeks and weeks that our banks are strong. So the ultimate question is why guarantee those bank accounts if the banks are so safe?
CHRIS BOWEN:
Sure, this is just an extra move Ross and Steve, to boost confidence in our financial institutions. We remain of the view that our financial institutions are very sound; they are some of the best credit-rated institutions in the world. But when you have this sea of headlines and almost constant updates – more bad news from around the world – it is natural for people to grow more concerned about the safety of their deposits.
So we have taken this extra step, we don't see anyone panicking or rushing to take their money out. So we are taking this extra step, for the first time in Australian history, to guarantee Australian bank deposits. We have also taken the step – in return for a small fee from the banks – to guarantee their borrowings offshore. We want to ensure that our banks can continue to borrow overseas, to put into the Australian economy. Other governments around the world were guaranteeing their banks. That could have seen Australia's go to the end of the queue of you like, so we wanted to ensure they could compete.
They are two of the steps we have taken over the weekend.
ROSS GREENWOOD:
Chris, were you getting any evidence out there, that Australians were starting to take savings out of small banking organisations or credit unions or building societies and trying to put them into the big four banks because they thought they were safe? Was there any evidence before you made this move of the flow of funds from smaller organisations into bigger organisations?
CHRIS BOWEN:
Certainly the big four banks have increased their deposits over the recent weeks and months…
ROSS GREENWOOD:
And what does that mean?
CHRIS BOWEN:
Well it means that people are looking for stability and certainty. They've heard…
ROSS GREENWOOD:
That means you are saying that money was moving from smaller organisations?
CHRIS BOWEN:
Well where it was coming from is another question. Certainly the big four banks were increasing their deposits in a dramatic fashion.
STEVE PRICE:
Well I guess that could be people selling shares or residential property…
ROSS GREENWOOD:
(inaudible) …smaller organisations, if I can ask one supplementary question, or are they having a reduction in the number of deposits they have?
CHRIS BOWEN:
Certainly not in any degree that concerns APRA or the Government, but what we wanted to do was to ensure that everyone had that extra level of insurance, if you like, of deposits in any deposit-taking institution – bank, credit union or building society – that is regulated by APRA, are guaranteed by the government.
STEVE PRICE:
Part of your ministerial responsibility is our linkages with banking institutions overseas. Did you get the feeling once the European banks, particularly Ireland, started to guarantee their deposits that the Australian banks would be left behind? Is that why you needed to move on Saturday?
CHRIS BOWEN:
That's partly the case Steve; we wanted to ensure – there has been more movements overnight in Europe following our announcement – we wanted to ensure that Australian financial institutions could compete without worrying that other banks were government-guaranteed when they weren't. So where you've got this high degree of nervousness around the world, in financial institutions, financial institutions are very reluctant to lend to each other, because we have seen a number of banks around the world – between 25 and 30 – go under in recent weeks. So you get banks very reluctant to lend to each other.
So then you have other countries say we will guarantee the borrowings of their banks, you could find Australia's financial institutions fall to the end of the list.
We want to make sure that they've got the chance to be up the top of the list, to get the money they need to keep the Australian economy going.
ROSS GREENWOOD:
One thing that a lot of people might have missed is that you have also guaranteed is that general insurance companies – people who have got their policies with these companies – their claims would be effectively guaranteed by the government if that organisation went under. Why did you feel that you had to do that as well?
CHRIS BOWEN:
Well of course this all arose, partly arose, out of the HIH inquiry, you might recall Ross, many years ago, where HIH went under and many people took a financial loss. Now there was a recommendation to the former government to set up a scheme, such as this. We adopted the scheme earlier, so it's not just banks and financial institutions, it covers general insurance companies in the very unlikely event – they are also regulated by APRA – but in the very unlikely event [inaudible]…the government will ensure their insurance policy is safe.
STEVE PRICE:
It's the Monday morning special on the financial crisis. I've got Ross Greenwood from Channel 9, with us for the next hour, and the Assistant Treasurer Chris Bowen as usual being kind enough to join us. Are we going to head into recession Minister?
CHRIS BOWEN:
Well if you look at all of the analysis, not only by us, the Government, the Treasury, but also by the IMF (International Monetary Fund), the World Bank, they indicate that we will continue to grow. Other countries are suffering zero or negative growth but we are not, and the projections are that we won't be. But we will be affected, we will see this crisis of confidence in the financial markets affect the real economy – the things that we all do everyday – but all the evidence is that we will continue to be robust and we will continue to grow.
STEVE PRICE:
So what's your message to working Australians listening to you who are on their way to work?
CHRIS BOWEN:
There are a couple of important messages. The most important one is that we a well-armed but we are not bullet-proof, but if we all keep our eyes on the fundamentals of the economy, there is no reason to be over panicky or over concerned.
The Australian Government is taking what steps we need to ensure we get through this crisis as best we can. We will be affected but the fundamental of our economy and the steps that the Reserve Bank, APRA and the Government have all taken, will see us through as well as we possibly can.
STEVE PRICE:
Lindsay Tanner said to me last week there was no need for a mini-Budget. Has that changed?
CHRIS BOWEN:
No. We of course have a mid-year financial statement later at the end of the year that happens every year, where we assess government revenues and assess any changes that need to be made.
We will keep the situation – which is the responsible course of action – under constant monitoring.
STEVE PRICE:
What might be required?
CHRIS BOWEN:
If there are situations that require a response then of course we will deliver it. But at this stage that's not on our agenda.
ROSS GREENWOOD:
Just a quick one, we have a caller here, Chip, who has called in. With the deposit guarantees will that include deposits in foreign banks? If I've got money here in Citibank or HSBC has a lot of branches around the place, are you going to guarantee those deposits as well?
CHRIS BOWEN:
The Australian subsidiaries of foreign banks. So obviously if you have got your money in a completely foreign bank, then that won't be covered. But if it is APRA-regulated – as those foreign banks with Australian subsidiaries are – then they will be covered.
ROSS GREENWOOD:
So if it's an ING Direct account – a lot of people have got their money in those types of accounts, those internet-type accounts – there all guaranteed as well?
CHRIS BOWEN:
Providing it's based in Australia, it can be owned overseas. But providing its based in Australia and governed by Australia's prudential regulation rules then we will guarantee it.
STEVE PRICE:
Just a final one. Why is that you would not guarantee superannuation accounts?
ROSS GREENWOOD:
Because that's included here isn't it?
CHRIS BOWEN:
It is Ross. When you look at superannuation, people have the capacity to take more risk. When you've got money in the bank, you are just looking for something safe and secure and steady. But when you have superannuation, you can say well I might take on a more risky investment in return for a higher yield or a higher return. It's not appropriate for the taxpayer to underwrite that. It's appropriate that the superannuation continues as it will. For superannuation we need to take a long-term view, yes people are taking a hit, but over time superannuation continues to be a very sound [inaudible].
STEVE PRICE:
I would say that it is the fund manager not the person whose individual monies…
CHRIS BOWEN:
I accept that Steve, but lots of people don't take up that option. You can move your superannuation around but I'd like a higher return with a higher risk thank you very much, and that's perfectly appropriate if you do that. But you have to wear the risk, not the taxpayer.
STEVE PRICE:
Thanks a lot for making yourself available as you usually do. Thanks a lot.
CHRIS BOWEN:
No worries.