Finance

Australia’s Scary New Bank Bail-in Laws

Australia’s Scary New Bank Bail-in Laws

I am not a financial advisor, but I do believe I have an obligation to at least make people aware of an incredibly pernicious act that the Australian government has quietly perpetrated against all Australians. It was sneakily pushed through parliament on the 14th of February 2018, with just 7senators present.

Passed on a voice vote, it bears the Orwellian title: Financial Sector Legislation Amendment (Crisis Resolution Powers And Other Measures) Bill 2017.

What is this horrendous new law?

It has been referred to as the ‘ARPA Bail-in Law’, the ‘Crisis Resolution Bill’, or just ‘Australia’s Bail-in Law’. Referred to that is, by the half a dozen or so companies in Australia who have bothered to report on it. I was shocked how little came up when I Googled it.

To anyone who does find it, it’s being sold as ‘crisis resolution’. Which obviously means it’s good and just. After all, what kind of scoundrel would be opposed to resolving a crisis?

Essentially, legislation has been passed to use (read: steal, re-appropriate, seize, spend) investments and potentially deposited funds (the balance of your own savings account) to make insolvent banks solvent again.

This is a scam of monumental magnitude — it is pure evil.

I am not dramatising the significance of this. The Citizens Electoral Council of Australia even describes it as such:

Bail-in is the bankers’ scam developed after the 2008 crash, to enable banks to continue the wild speculation that caused the financial crisis, but cover their gambling losses by seizing the savings of unsuspecting “mum and dad” investors and even depositors. Everywhere it has been applied it has ruined savers and destroyed confidence in banks.

What does Bail-in mean?

Bail in is a great big bankster scam. Historically, many banks have been legally required to separate depositor funds (your money) from the money they use to gamble and speculate on the stock market. In the US this was known as Glass-Steagall, but that was repealed in 1999.

Recently, many smart (and evil) banksters convinced governments in various countries that, in the event of failure or catastrophic loss, they can just use your money to cover the debt. This innovation is an alternative to using taxpayer funds via a government bail out (it saves the government face because taxpayers aren’t directly paying for it via taxation, thus the bad press is confined to the particular bank(s) affected).

Historically, banks that have exercised these new measures, such as Cyprus (more on this below), have seized the investment funds of small businesses, that is to say, mum and dad investors. However, your own savings account is equally unsecured. And where do you think they’ll turn if they need more money to stay afloat?

Why would they want to destroy confidence in themselves you ask?

One, because all the big banks are in on this. Which means it’s unlikely that the fallout could be isolated to just a few of the institutions. If it were, people could just change to banks operating more respectably and honestly. With no alternatives, there’s little threat to losing customers.

Even if one bank fails particularly hard and does lose customers, they’ve lost no money because you and every other customer paid for their losses. That leaves them in a much better position. Perhaps they can relaunch under a new name without ever having to declare bankruptcy.

Appalling.

Additional clarification from the CEC:

In Australia, due to an intense mobilisation by the CEC starting in 2013, APRA has so far shied away from “statutory” bail-in such as New Zealand has, known as the Open Bank Resolution system, which explicitly includes deposits. However, APRA has laid the foundation for “contractual” bail-in by allowing Australia’s banks to sell tens of billions of dollars’ worth of complex “bail-in” bonds to unsuspecting mum and dad investors. In a crisis, bail-in bonds convert into worthless shares in the failing bank, which will backfire by destroying confidence in the banks, as it has everywhere bail-in has been applied.

What are the implications of the Australian Bail-in laws?

This law means that banks can be even less scrupulous and discerning about who they choose to lend money to. Typically, banks want reasonable assurance that someone can pay back a loan because it takes money and resources to chase up repayments, reach an agreement, or take it to court. But now they are far less likely to incur losses. Now it’s YOUR burden and YOUR money on the line.

Similarly, it means banks can speculate on the stock market with your own money, without incurring that risk onto themselves.

They are now emboldened to use your money to gamble. If they win, they pocket the profit, if they lose it, “Oh well, not our money, not our problem”. It’s yours.

Even if you trust your bank to do everything in their power to manage your funds diligently. There’s a reason this law was passed earlier this year and was accelerated through parliament. Many see a financial crisis looming.

A sobering breakdown of this was penned a few months ago by Matt Barrie. It illuminates the disastrous state of affairs in Australia’s economy and indicates that Australia will be devastated by the next economic downturn. If you live in Australia, I cannot state highly enough the importance of familiarising yourself with that article and making yourself aware of the current situation.

“But this is only an extreme crisis measure, right?”

In name sure, but that’s just doublespeak to allay fears of misuse. That’s so anyone speaking out about this can be undermined.

But let’s pretend that our benevolent and honest government (and their most respectable banker cronies) really do intend only to use this law in a time of genuine economic crisis.

In the past 100 years, a recession has occurred on average, every couple of years. Yes that link is US recessions, but a recession in the US means a downturn for Australia (per the above article).

Only twice in the last 100 years has it been so long between recessions.

That isn’t to imply we’re ‘due’ for one, as recessions and depressions aren’t things that randomly happen, but are a result of cause and effect (the cause being government manipulation of the interest rate leading to poor financial decisions by individuals and businesses alike). But simply to show that this is an anomaly and a correction is likely to happen sooner than later.

That’s all the excuse they need to enact a ‘crisis resolution’ and steal your hard earned savings.

“Are there any protections in place to secure my bank deposits?”

Yes, though it isn’t rock-solid protection. The Federal Claims Scheme guarantees deposits up to $250,000.

Banking law in Australia operates on a requirement of “depositor preference”. This means in the event a bank goes down, the first distributions must go to depositors under that limit, then to all deposits in excess $250k. Only then does money flow through to other creditors like bond holders or the Reserve Bank.

But this bail-in law serves as a pernicious step to chip away at that.

There are also sneaky measures which allow banks to setup their subsidiaries (like St George to Westpac or Bank West to CBA etc), to receive first distributions. There’s also a $20 billion dollar capwhich may not be enough to cover all depositor funds, especially at the larger, so called ‘too big to fail’ institutions. Which is incredibly worrying when you discover that “PPP’s Vern Gowdie wrote just this week about the fact that 90% of deposits are held by just 10% of our financial institutions, or 9 banks in number”.

The Federal Claims Scheme operates as follows:

  • “The Scheme is activated at the discretion of the Australian Treasurer where APRA has applied to the Federal Court for an ADI to be wound up. This can only be done when APRA has appointed a statutory manager to assume control of an ADI and APRA considers that the ADI is insolvent and could not be restored to solvency within a reasonable period.
  • Upon its activation, APRA aims to make payments to account-holders up to the level of the cap as quickly as possible – generally within seven days of the date on which the FCS is activated.
  • The method of payout to depositors will depend on the circumstances of the failed ADI and APRA’s assessment of the cost-effectiveness of each option. Payment options include cheques drawn on the RBA, electronic transfer to a nominated account at another ADI, transfer of funds into a new account created by APRA at another ADI, and various modes of cash payments.”

Assuming the process is orderly (which is unlikely, but I’ll be charitable), you can expect to receive access to (some, all, most) of your money “generally within seven days”.

How reassuring…

It also assumes there’s still money left over to be issued to depositors.

Further clarification from the Ainslie Bullion’s release:

The legislation allows our banking regulator APRA ‘crisis powers’ to secretly step in and run distressed banks. It allows APRA to then confiscate and write off certain types of bonds and hybrid securities and allows them to confiscate cash savings of SMSF’s. Whereas elsewhere around the world, including our neighbours New Zealand, they specifically include the confiscation of depositors’ funds (savings), the Aussie version just cleverly doesn’t specifically exclude that….

Scary stuff, no matter how little or how much money you have in your bank account.

If you don’t think it can happen, think again. It already has.

Cyprus was the experiment. Now the scam is being exported all around the world.

How can you protect your savings and your livelihood against this potential threat?

Due your due diligence on what you choose to do with your hard-earned money.

Don’t assume a bank is ‘too big’ or is shielded from basic economic cause and effect. If funds are misused, there’s always a risk of loss.

Here are some guidelines which I currently or plan to make use of personally to protect myself and my savings:

  • Don’t keep more than 6 months worth of living expenses in the bank — or if you must, keep a healthy sum in an account at a separate financial institution
  • Consider opening a foreign bank account in a country that does not have worrisome bail-in laws
  • Consider opening a bank account with a smaller domestic institution that has a more intimate relationship with customers and is less likely to engage in dodgier practices
  • Investigate whether a full-reserved bank makes sense for you. In such a bank your money will not be lent out, which means you will not earn interest (though some allow you to invest via your account, giving you control and not some gambling bankster).
  • Investigate cryptocurrencies, right now appears to be a good time to buy if you focus on currencies with solid fundamentals (fast transaction times, large number of transactions, anonymity, whether companies are starting to accept them)
  • Investigate options for investing in precious metals — this might mean opening a BitGoldaccount, having the metal stored in secured vaults both in and out of your home country, and keeping some directly on-hand yourself
  • Keep a little extra cash on hand — Don’t get caught out by punitive withdrawal rationing as happened recently in Greece
  • I shy away from the stock market because I think it’s an enormous bubble of looming devastation, but at this point so is keeping money in the bank. Do whatever you think is the best when it comes to stocks.

The ultimate principle — as the old adage goes, don’t keep all your eggs in one basket. Have many baskets such that if some go down, you don’t go with them.

I don’t want or intend to mis-state or misrepresent the situation. Everything here is what my research indicates to be the truth. If you identify any erroneous statements, I am more than willing and happy to correct if the truth can be substantiated.

This article was originally published by Brad Matthews

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