Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697646111410.pdf (Australia)
Submission the Senate Economics Legislation Committee has just launched a new inquiry into the Banking Amendment (Deposits) Bill 2020 The federal government claims bank deposits won’t be bailed-in in the event of an imminent bank collapse.

However, this sentiment is not written in law.


As you would know, the Financial Stability Board (FSB) of the Bank for International Settlements (BIS) has a policy, Key Attributes of Effective Resolution Regimes, to manage prospective banking crises without needing to resort to government (that is, taxpayer) bailout.

This policy would see bank deposits used to support banks in the event they faced failure, thus converting deposits to equity in the institution; in other words a bail-in.
As a member of the G20, Australia has signed on to this policy.

The USA, Britain, EU, Canada, and New Zealand all have explicit deposit bail- in policies.

In 2017, the federal government enacted the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017, which empowers APRA to order the bail-in of certain Tier 1 and Tier 2 capital securities (these include bail-in in their terms and conditions).
Section 11CAA Deﬁnitions states that “conversion and write-off provisions” relate to: “(a) Additional Tier 1 and Tier 2 capital; or (b) any other instrument.” This language — the use of the word ‘additional’ and the phrase ‘any other instrument’ — is broad enough to create a loophole that could extend a bail- in to include deposits.
The Feb. 9, 2018 report of the Senate Economics Legislation Committee’s inquiry into the Crisis Resolution bill stated the bill was based on the FSB’s Key Attributes of Effective Resolution Regimes, which includes deposit bail- in.
To quote: “The legislation proposed in the bill draws on these criteria in forming its plan for ﬁnancial crisis resolution and resolution planning.” While the federal government, Treasury, RBA, APRA and ASIC may all claim the bill would not bail-in deposits and that deposits are protected up to $250,000 per person per bank guarantee through the Financial Claims Scheme (FCS), the guarantee only applies if the bank becomes insolvent and even then there is no guarantee the FCS would be activated.
In the words of the then-Treasurer Scott Morrison in a February 2018 letter to Ken Wyatt MP, “the government retains discretion to activate the FCS when an institution fails”.

As such, a bail-in can be applied to prevent a bank failure, which does not protect those deposits.

To make certain bank deposits will not be used in a bail-in, the legislation must explicitly state that.

The Banking Amendment (Deposits) Bill 2020 is designed to do that, without otherwise affecting the rest of the bill.
Banking Amendment (Deposits) Bill 2020Submission 108 I urge all parties to support this bill.

The law should make it explicit that bank deposits cannot be used to bail-in banks.

The law must be crystal clear, so there is no ambiguity.

Sincerely Stevie Bee Banking Amendment (Deposits) Bill 2020Submission 108