The Prime Minister has just announced legislation that will guarantee the first $20,000 of each individual bank deposit. Bloody hell!
What does that imply about the rest of each bank deposit? (One of my family's deposits is quite big at the moment.)
It was fine when there was no explicit guarantee of bank deposits - that mean that everyone was in the same boat. But not now. This wise thing would be to split our family's deposit into a number of individual $20,000 accounts.
Other depositors will think the same way. As John Quiggin says, it'll lead to large-scale withdrawals:
"The possibility of this turning into a run is far from remote".
As commenter Bingo Bango Boingo says:
"Is he mad? One day he says bank savings are safe, the next he comes out with a policy that very strongly signals they are nothing of the sort."
This surely can't last. He'll have to guarantee the lot. No real loss, they have been effectively guaranteed anyway.
Friday, October 10, 2008
Rudd has me very, very worried
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4 comments:
now we all can earn money totally risk free!
it's a stupid idea overseas and it still a stupid idea over here
Fancy that! Our Kev trying out out populist the late unlamented telescope to me blind eye Brendan Nelson and the born again populist allegedly "eyes wide open" Malcolm the Important.
Now I'm off to the pokies. A much, much safer bet in the current economic environment. (BTW, some of my best friends are soothsayers ... and I entirely trust their readings of KFC chicken entrails.)
I agree that $20,000 is too low an amount.
Al
The decision to guarantee everything may indeed undermine the banks
Bank X (one of the shifty ones) has deposit rates of 7%
Bank Y (one of the four pillars) has deposit rates of 6.5%
The risk for each is the same. Those with large deposits move to Bank X out of Bank Y. Bank Y is a well capitalised, conservative, well run bank.
Big danger here.
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