Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697646534784.pdf (Australia)
10 July 2020 The Chair The Senate Economics Legislation Committee PO Box 6100, The Senate Parliament House Canberra ACT 2600 Re: Banking Amendment (Deposits) Bill 2020 Dear Senator Brockman Over a twenty-year career in the finance industry, I have worked for ten years in investment banking, funds management and asset consulting.

In financial regulation, I have worked for three years at ASIC and six years at APRA as Principal Researcher.
I was seconded for one year as a senior adviser to the Super System Review (Cooper Review) until 2010.

I am seriously concerned about developments in the Australian financial system.

I am not a member of any political party and have no affiliation with any political organisation.

My submission is unpaid by anyone and is entirely motivated by wanting to use my professional experience to make a contribution to sounder public policy in the interest of Australia.
My submission argues that the draft bill should be passed as soon as possible, because the amendments of the bill merely clarify and confirm that bank deposits are safe from “bail-in”, which is the official view expressed by the Government.

My submission titled “Clarify Bank Deposit Safety” is enclosed as an attachment.
Your faithfully Dr Wilson Sy Investment Analytics Research Page 1 of 4 Banking Amendment (Deposits) Bill 2020Submission 186 Submission to the Senate Economics Legislation Committee Clarify Bank Deposit Safety Dr Wilson Sy Investment Analytics Research 10 July 2020 The Bill before the Senate, Banking Amendment (Deposits) Bill (2020), provides much needed clarification of the amendments introduced by the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 to the Banking Act 1959.
The Bill clarifies the prior legislation by making explicit what the Government has asserted: that bank deposits are safe from “bail-in”.

Since the Bill does not make any other amendment of substance, it should be welcome and accepted.

Legal Confusion Each year, the Australian Parliament passes many legislation, some of which have unclear and ambiguous elements, causing confusion in their legal application.
The reason is that politicians typically pass significant laws simply along party lines, often unaware of important details.

Private conversations with politicians have often shocked them about the significance of what they have done.

Yet they typically provide only pro-forma answers to questions about important legislation raised by their constituents.
Due to misunderstanding from legal confusion, politicians, journalists and even regulators have often misinformed and misled the public, for example, asserting that  Bank deposits are protected by the Financial Claims Scheme (FCS),  Bank deposits cannot be legally converted or written off in resolving a banking crisis (“bail-in”).

These statements are potentially wrong, because of the uncertainty in interpreting the respective regulation and the legislation.
The first assertion relating to the FCS and how it operates has been discussed in a 2017 submission1 and is not directly relevant to the current submission which is related to the Banking Amendment (Deposits) Bill (2020) (hereafter The Amendment) of the current Senate inquiry2.

This submission explains why The Amendment is necessary.
1 file:///C:/Users/sywil/AppData/Local/Temp/1-1.pdf 2 https://www.aph.gov.au/Parliamentary Business/Committees/Senate/Economics/BankingDeposits Page 2 of 4 Banking Amendment (Deposits) Bill 2020Submission 186 The Official View The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 (hereafter The Act) was legislated to empower the Australian Prudential Regulation Authority (APRA) to resolve or rescue a regulated institution in a financial crisis.
The Act was passed on 5 March 2018, following a Senate Economics Legislation Committee inquiry, which delivered in February a report3 which states (Paragraph 2.37, p. 19): Treasury confirmed that because deposits are not classified as capital instruments, and do not include terms that allow for their conversion4 or write-off, they cannot be 'bailed-in'.
And concludes (Paragraph 2.56, p. 22): The committee believes that the protection of depositors' interests is paramount and does not consider that the bill would allow the 'bail-in' of Australians' savings and deposits.

Furthermore, on 9 July 2019, APRA released its response5 to submissions on proposed changes to the application of the capital adequacy framework designed to support the orderly resolution of a failing authorised deposit-taking institution (ADI).
In discussing eligible instruments for absorbing losses and the possibility of “bail-in”, APRA stated (p. 5): APRA does not have a statutory power to write-off or convert the interests of creditors.

Expanding APRA’s powers to allow for a statutory bail-in approach would require legislative change, which is ultimately a consideration for government and would need to go through the parliamentary process to be implemented.
Evidently, from these statements, the official view is clear that “bank deposits cannot be legally converted or written off in resolving a banking crisis”.

Therefore, should The Amendment be considered unnecessary due to the official view?

The short answer is The Amendment is still necessary, because the official view can easily change, whereas the legislation is more permanent.

The official view is merely the current interpretation of the Government, and is not one overtly expressed in the legislation.
Uncertainty and Concern Unfortunately, official views and opinions are not necessarily accepted in the court of law, which is the ultimate arbiter of how The Act should be interpreted on the safety of bank deposits from “bail-in”.
Alternative interpretations to the official view are possible due to 3 file:///C:/Users/sywil/AppData/Local/Temp/report.pdf 4 Conversion to common equity as Tier 1 capital 5 https://www.apra.gov.au/sites/default/files/response to submissions - loss- absorbing capacity v1 0.pdf Page 3 of 4 Banking Amendment (Deposits) Bill 2020Submission 186 vagueness or ambiguity of some terms such as “any other instrument”, and due to the ability of retail banks to change their “terms and conditions” on bank deposits, typically without prior notice.
In 5 November 2018, Queensland LNP Senator Amanda Stoker, barrister, explained in a letter to a constituent, her view of The Act: The legislation facilitates bail-in as a type of resolution power which is available for dealing with financial institution distress.

This was done after the G20 leaders endorsed a new Financial Stability Board standard for Total Loss-absorbing Capacity.
Another lawyer, Robert M. Butler opined6 also that …the provisions of the Act do provide for a power of bail-in of bank deposits which did not exist prior to the passing of the Act and that banks… Therefore, the main concern for bank depositors is that there is enough uncertainty in the legislation to allow the Government and APRA to change later their opinion about whether “bail-in” of bank deposits is permitted by the legislation.
Once “bail-in” occurs under current legislation, it would be a long, tedious and costly process for the society to settle the legal challenges which could result from depositors’ action.

The fear and anxiety expressed by Australian bank depositors are not imaginary or unreal when several other countries, including New Zealand7, have already legislated “bail-in” recommended by the Financial Stability Board (FSB).
It is should be remembered that the FSB has neither the mandate nor the accountability of the people; the FSB is merely a global organization to protect the interests of the banks.

Governments are under no obligation to accept the recommendations of FSB.

It is very positive if Australia puts its official view of deposit protection more clearly in the legislation.

Conclusion The Banking Amendment (Deposits) Bill (2020) clarifies the official Government view that bank deposits are safe from “bail-in”, i.e.
from write-off or conversion in the event of a crisis resolution of a failing bank.

As the Bill contains no other amendments which need consideration, it should be passed as soon as possible.

6 https://citizensparty.org.au/sites/default/files/2019-07/190708-opinion-bankterms.pdf 7 https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Bulletins/2013/2013mar76- 1hoskinjavier.pdf?revision=b366beb5-aeda-44d9-807d-e76900e962e6 Page 4 of 4 Banking Amendment (Deposits) Bill 2020Submission 186