Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697646489793.pdf (Australia)
Christopher Lloyd Horsfall 9 July 2020 Senate Standing Committees on Economics PO Box 6100 Parliament House Canberra ACT 2600 Dear Committee Secretary and Senators, Re: Submission regarding the Banking Amendment (Deposits) Bill 2020 I am a retired research scientist, formerly employed at CSIRO.

I have been a past coordinator of the Australian Investors Association (AIA) in Sydney and am a current member of Economic Reform Australia (ERA) and the Australian Technical Analysts Association (ATAA).
I have been interested in economic cycles for at least the last thirty years.

I support this bill.

My concerns about the existing legislation in the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 that I believe requires amendment are as follows: 1.

The Section 11CAA Definitions of the 2017 Crisis Resolution Bill define that the “conversion and write-off provisions” relate to “(a) Additional Tier 1 and Tier 2 capital; or (b) any other instrument”.
I believe that this broad language at (b) empowers the bank regulator APRA to extend bail-in to include deposits.

2.

The Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017 was rushed through the senate on 14 February 2018 with only eight senators present.
In addition, the two senators from Pauline Hanson’s One Nation were not in the chamber, despite One Nation having informed the government that they intended to move an amendment to explicitly exclude deposits from being included in “any other instrument”.

There was clearly insufficient representation by elected senators and insufficient deliberation over the failings in this legislation.

3.
3.

The Financial Claims scheme (FCS) that protects deposits up to $250,000 per person per bank has not been “activated” for the deposit guarantee to apply and there is no obligation for the government to activate it.

The FCS applies only when a bank fails, whereas bail-in is intended to be applied earlier to avert a bank failure, so it does not protect deposits from bail-in.

4.

5.
4.

5.

I believe that the bail-in provisions of 2017 Crisis Resolution Bill has contributed to a loss of faith in financial institutions as a safe place to hold money.

As was revealed on the ABC’s 7.30 Report on 9th July 2020, Australians are hoarding cash notes, because they are fearful of banks as a place transacting.
to (https://www.abc.net.au/7.30/covid-pandemic-speeding-up-the-demise-of-cash/12441000 ) increased use of digital means of their wealth, despite store I believe that if only one Approved Deposit-taking Institution (ADI) in Australia bails-in the deposits of its customers, it will trigger a run on the banks and a consequent closure of the doors of financial institutions across the country.
This will place a freeze on economic activity as the public hoard cash and restrict spending only to that which is essential for their survival.

As a Banking Amendment (Deposits) Bill 2020Submission 178 consequence, many businesses will fail and the government will have created an even bigger problem as a result of the 2017 Crisis Resolution Bill.

It is important that this Banking Amendment (Deposits) Bill 2020 is passed to improve the confidence of the public in the banking system.

6.
6.

If bail-in is applied in Australia, it will give rise to a liquidity crisis in the general economy.

Deep recessions and depressions have been caused by loss of liquidity from credit squeezes alone in the past.

In addition to a credit squeeze, banks would be confiscating depositor’s savings, limiting their ability to meet their financial obligations through both lack of credit and loss of their savings.
This will precipitate an even deeper economic crisis than has been experienced in past economic downturns.

7.

As a consequence of any bail-in, citizens would be compelled to sell their shares and property assets in a bid to obtain liquidity to be able to meet their financial commitments, including feeding and providing shelter for their families.
This sale of assets would bring about deflation of asset values, spreading fear through the community and make the banking system’s problem worse as the assets providing security to banks on loans to the public decline in value.

Overseas lenders to Australian banks would see increased risk in lending to Australian banks and would, I expect, demand higher interest rates on their loans to Australian banks, further deepening the downward economic spiral.

8.
8.

Banks using the bail-in provisions that allow them to confiscate customer deposits would be one of the few entities with liquidity permitting them to buy shares and property for cents in the dollar.
While banks might eventually return the money they have confiscated from customer deposits, they will have been able to purchase shares and property during a downturn precipitated by bail-in, when their customers have no ability to buy significant quantities of shares and therefore provide buying competition in the stockmarket that could prevent a more severe collapse in share market values.
Such a downturn, precipitated by bank bail-in would leave important Australian assets owned by banks and foreign entities.

Future policy would be determined less by elected government representatives, and more by those who own most of the country.

Australians have sacrificed their lives in past wars against fascist and totalitarian states and I believe that the bail-in provisions of the 2017 Crisis Resolution Bill will result in a betrayal of their sacrifice for democracy.
I believe that the solution to a potential crisis caused by the 2017 Crisis Resolution Bill is to pass the Banking Amendments (Deposits) Bill 2020 to remove any possibility of bail-in of deposits.

I believe that the weaknesses in the banking system should be removed by a Glass-Steagall separation of banks’ speculative activities from the everyday operations that facilitate commerce in this country.
I believe that, in the event of a failure of any bank, the bank should be nationalized and, when economic conditions stabilize again, be sold if necessary in a stock market float, as has been previously done successfully in Sweden, rather than being propped up as a poorly-managed private entity by taxpayers.

I believe that the recommendations of the Hayne’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry should be implemented as soon as possible.
Given the serious economic consequences of the present 2017 Crisis Resolution Bill, I ask that the Committee hold a public hearing and call experts to testify.

Yours faithfully, Chris Horsfall Banking Amendment (Deposits) Bill 2020Submission 178