Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697646300152.pdf (Australia)
SUBMISSION TO THE ECONOMICS LEGISLATION COMMITTEEE INQUIRY BANKING AMENDMENT (DEPOSITS) BILL 2020 SUMMARY 1.

This submission is made by 2.

The SMSF, in recent years, has been weighted towards bank deposits according to the fund’s (trustee of an SMSF).

investment risk management strategy, which takes into account members’ age.

3.

Current legislation regarding “bail-in” provisions is unclear regarding extent and detail of 4.

5. application.
5. application.

I have been unable to obtain clarity on “bail-in” applicability from ADIs with whom the SMSF has deposits.

In the event of “bail-in” there is uncertainty as to whether the FCS $250,000 safety net would be applied, depending on when “bail-in” is applied (ie before, or after an ADI technically “fails”).

6.

These factors have resulted in considerable concern for the SMSF.

7.
7.

To address this, this SMSF has moved some assets out of (previously considered low risk) ADI investments into alternative (previously considered higher risk) non-ADI investments.

8.

An added consequence of this action is that it potentially contributes to ADI loan capital starvation.

9.

Formal clarification of legislation is required, which the amendments bill could provide.
BACKGROUND  This submission is made in the capacity of trustee of a moderately sized Self Managed Superannuation Fund (SMSF).

 The fund has a corporate trustee structure and I make this submission in the capacity of a director of the corporate trustee.

I have equal concerns regarding personal assets held outside of the SMSF with ADIs.
 BAIL-IN LEGISLATION  The term “bail-in” used in this submission is as defined in Senator Roberts’ bill: “Banking Amendment (Deposits) Bill 2020”  The “Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018, Section 31, 11CAA Definitions” states: “conversion and write-off provisions means the provisions of the prudential standards that relate to the conversion or writing off of: (a) Additional Tier 1 and Tier 2 capital; or (b) any other instrument.” Banking Amendment (Deposits) Bill 2020Submission 63  The use of (b) “any other instrument” is open ended and needs clarification.
 There have been government indications to the effect that this clause would not be applied to ADI term deposits, deposit savings accounts and transaction accounts, however the legislation does not support this.

 There is a need to amend the legislation to clarify application of the provisions and provide certainty for investors.

FINANCIAL CLAIMS SCHEME  The Financial Claims Scheme (FCS) is intended to provide a safety net for deposits up to $250,000 per account holder per ADI.
 The scheme purports to provide financial protection in the event of failure of the ADI.

 Failure is generally considered defined as the ADI going into liquidation.

 There is nothing to stop “bail-in” occurring before the ADI technically fails, hence precluding activation of the FCS.

 This makes the FCS potentially ineffective and hence makes clarification of the “bail-in” provisions very important.
CONCLUSIONS  The lack of certainty around application of “bail-in” is causing investors considerable concern.

 This uncertainty is driving assets away from previously considered “safe” ADI bank deposit investments, such as term deposits, savings accounts and transaction accounts.

 The effect of driving deposit investments away from ADIs is to potentially “starve” them of loan capital.

 The FCS may not provide the safety net it was intended to do if “bail-in” occurs prior to the failing of the ADI.
Legislation is urgently required to clarify the provisions of “bail-in”.

  The “Banking Amendment (Deposits) Bill 2020”, if passed, could provide that clarity.

Banking Amendment (Deposits) Bill 2020Submission 63