Funding the Financial Claims Scheme

Parliament house flag post
Australian cash and coins

Funding the Financial Claims Scheme

Posted 30/03/2015 by Tarek Dale

The Australian Financial Review recently discussed whether the Government will apply a levy on bank deposits to fund the Financial Claims Scheme. This flagpost provides background and key links on the Financial Claims Scheme, and discussion over how it should be funded.

The Financial Claims Scheme (FCS) was initially introduced in 2008 through the Financial System Legislation Amendment (Financial Claims Scheme and Other Measures) Bill 2008. It was one of multiple measures taken in response to the global financial crisis.

In its current form, the FCS provides a guarantee by the Commonwealth Government to depositors at locally incorporated authorised deposit-taking institutions (ADIs), up to a limit of $250,000 AUD per account-holder per ADI. This protects depositors ‘from potential loss due to the failure of these institutions’, by ‘providing them with certainty that they will recover their protected deposits quickly in the event that an ADI fails and the Scheme is activated’. The FCS also covers eligible policyholders of general insurance companies.

One of the main policy questions in relation to the FCS is the timing of its funding. Payments are made by the Government under the FCS only where a covered financial institution is unable to meet its obligations to depositors (or particular protected insurance-policy holders). As currently implemented, the Government will make initial payments to depositors under the FCS, but recovers these costs through both the liquidation process, and potentially by ‘imposing a levy on the banking sector’.

Two broad options for funding the FCS are:

  • the current model - a tax that is levied on the financial sector after the Government has made payments under the FCS (‘ex post’ funding), or
  • a tax levied on financial institutions on an ongoing basis, before any payments need to be made under the FCS (‘ex ante’ funding). Where the funds from the ongoing levy are insufficient, the Government could potentially recover the remaining costs through an additional levy after payments are made.

In 2012, as part of its Financial System Stability Assessment for Australia, the International Monetary Fund recommended that the FCS be changed to ‘ex-ante’ funding. The IMF suggested that the FCS could be funded from:

a credible and adequate reserve fund built up from periodic flat-rate assessments on ADIs’ deposits initially but changing to risk-based assessments over time, and the fund’s investment objective should emphasize liquidity and safety over return.

The Labor Government’s 2013 Economic Statement included a measure for the establishment of a financial stability fund, which would build over time ‘to a target size of 0.5 per cent of total deposits protected by the FCS’, applying from 1 January 2016. In a press conference, the then Treasurer Chris Bowen MP suggested that a ‘financial stability levy’ of 5 basis points, or 0.05 per cent, might apply to deposits covered under the FCS.

The Coalition Government’s 2013-14 MYEFO and 2014-15 Budget Paper 1 noted that the financial stability fund would operate from 2016, ‘subject to the outcomes of the Financial System Inquiry’. However the Financial System Inquiry (FSI), after evaluating the issue, recommended in its final report that the Government should ‘Maintain the ex post funding structure of the Financial Claims Scheme’. In its analysis, the FSI identified a number of advantages for the ex ante (pre-funding) model, including that it was:

  • ‘based on a user-pays principle’
  • would enable ‘levy funds to be deployed to aid in wider ADI resolution purposes’, and
  • offers ‘the potential to build a fiscal buffer’.

However, the FSI noted that ‘an ex ante levy would be an ongoing cost for all ADIs’, and that ‘Australia’s depositor preference arrangements reduce the risk of an ADI’s assets being insufficient to meet insured deposits’ (under the Australian framework, depositors have preference over other unsecured creditors when an ADI is being wound up). It also argued that its other recommendations (including for stronger ADI capital requirements) would reduce the need to draw on any potential financial stability fund.


Thank you for your comment. If it does not require moderation, it will appear shortly.
Facebook LinkedIn Twitter Add | Email Print

FlagPost

Flagpost is a blog on current issues of interest to members of the Australian Parliament


Parliamentary Library Logo showing Information Analysis & Advice

Archive

Syndication

Tagcloud

refugees asylum immigration Australian foreign policy Parliament elections climate change social security women welfare reform taxation Indigenous Australians Australian Defence Force welfare policy school education higher education private health insurance health financing emissions trading Senate Australian Bureau of Statistics employment people trafficking Asia statistics Middle East illicit drugs gambling health reform federal election 2010 Australian Public Service income management Medicare disability Sport United Nations environment industrial relations constitution transport politics criminal law Afghanistan health forced labour food public service reform aged care aid Australian Sports Anti-Doping Agency World Anti-Doping Agency United States federal budget Carbon Pricing Mechanism dental health international relations governance regulation Fair Work Act voting law enforcement electoral reform OECD Australian Electoral Commission WADA child protection poker machines Australia in the Asian Century steroids National Disability Insurance Scheme detention 43rd Parliament slavery health system leadership domestic violence parliamentary procedure International Women's Day accountability defence capability multiculturalism ASADA Australian Federal Police labour force people smuggling debt New Zealand Australian Crime Commission pharmaceutical benefits scheme political parties coal seam gas Human rights crime China Census election results UK Parliament Papua New Guinea banking corruption pensions children's health Aviation federal election 2013 foreign debt gross debt net debt Senators and Members ALP Newstart Parenting Payment Youth Allowance sea farers United Kingdom energy food labelling Australian economy violence against women vocational education and training military history by-election High Court skilled migration mental health Federal Court terrorist groups science social media Higher Education Loan Program HECS federal state relations youth paid parental leave same sex relationships customs planning doping health risks Gonski Review of Funding for Schooling sex slavery Special Rapporteur Northern Territory Emergency Response social policy ANZUS Rural and regional trade unions Foreign affairs election timetable Indigenous royal commission Productivity firearms public policy Population ADRV terrorism transparency research and development welfare ASIO intelligence community Australian Security Intelligence Organisation carbon tax mining employer employee renewable energy regional unemployment fishing European Union family assistance United Nations Security Council forestry Drugs welfare systems Indonesia children Constitutional reform local government codes of conduct terrorist financing homelessness Parliamentary remuneration money laundering Trafficking in Persons Report social inclusion paternalism environmental law US presidential election nutrition ODA Defence sitting days electoral divisions Southeast Asia administrative law universities TAFE Ireland citizenship asylum seekers early childhood education Canada Financial sector national security fuel disability employment Tasmania integrity standards NATO Australian Secret Intelligence Service sexual abuse World Trade Organization Australia public health housing affordability bulk billing water health policy Governor-General US economy export liquefied natural gas foreign bribery question time speaker superannuation public housing expertise climate Intergovernmental Panel on Climate Change Department of Agriculture Fisheries and Forestry Pacific Islands reserved seats new psychoactive substances synthetic drugs UNODC carbon markets animal health middle class welfare constitutional recognition of local government referendum consumer laws PISA competition policy US politics language education baby bonus Leaders of the Opposition citizen engagement policymaking Australia Greens servitude Trafficking Protocol forced marriage alcohol entitlements ministries Hung Parliament social citizenship maritime Iran regional students school chaplains federal budget 2011-12 salary Medicare Locals primary care Building the Education Revolution marine pollution sustainability prisons police deaths in custody electoral margins electoral pendulum electoral redistribution redistribution NSW redistribution WA redistribution ACT electoral boundaries ASEAN Sustainable Development Goals Double dissolution Senators safety vehicles MYEFO Pathology tertiary education Taiwan Xi Ma meeting family violence government financial advisers financial planners Financial System Inquiry Murray Inquiry China; Economic policy; Southeast Asia; Africa housing Speaker; House of Representatives; Parliament High Court; Indigenous; Indigenous Australians; Native Title ACT Indigenous education Norfolk Island External Territories emissions reduction fund; climate change child care funding refugees immigration asylum procurement Indigenous health e-voting internet voting nsw state elections 44th Parliament 2015 ABS Age Pension Death penalty capital punishment execution Bali nine Bali bombings Trade EU China soft power education Fiji India Disability Support Pension Antarctica Diplomacy by-elections state and territories Bills anti-corruption fraud bribery corporate ownership whistleblower G20 economic reform innovation Members of Parliament Scottish referendum Middle East; national security; terrorism social services Criminal Code Amendment (Misrepresentation of Age to a Minor) Bill 2013 online grooming sexual assault of minors ACT Assembly smoking plain packaging tobacco cigarettes Asia; Japan; international relations Work Health and Safety Migration; asylum seekers; regional processing China; United States; international relations fiscal policy Racial Discrimination Act; social policy; human rights; indigenous Australians Foreign policy Israel Palestine asylum refugees immigration political finance donations foreign aid Economics efficiency human rights; Racial Discrimination Act employment law bullying Animal law; food copyright Australian Law Reform Commission industry peace keeping contracts workplace policies same-sex marriage disorderly conduct retirement Parliament House standing orders prime ministers First speech defence budget submarines workers Somalia GDP world heritage political engagement leave loading Trade; tariffs; safeguards; Anti-dumping public interest disclosure whistleblowing Productivity Commission limitation period cancer gene patents genetic testing suspension of standing and sessional orders live exports infant mortality honorary citizen railways disciplinary tribunals standard of proof World Health Organisation arts international students skilled graduate visas temporary employment visas apologies roads Italy national heritage NHMRC anti-dumping Rent Assistance obesity evidence law sacrament of confession international days DFAT UN General Assembly deregulation Regulation Impact Statements small business Breaker Morant regional engagement social determinants of health abortion Members suspension workplace health and safety marine reserves hearing Victoria astronomy resources sector YMCA youth parliament Korea rebate Australian Greens presidential nomination Racial Discrimination Act political parties preselection solar hot water Financial Action Taskforce Horn of Africa peacekeeping piracy Great Barrier Reef Stronger futures political financing political education Social Inclusion Board early childhood National Quality Framework for Early Childhood Education and Care Murray-Darling Basin sanctions Norway hospitals republic President Barack Obama Presidential visits qantas counselling Korean peninsula Work Choices biosecurity hendra federalism federation preselection therapeutic goods Therapeutic Goods Administration plebiscites computer games pests suicide nuclear COAG Ministerial Councils floods ADHD stimulant medication advertising electricity extradition conscience votes poverty preventative health rural health coastal erosion Parliamentary Budget Office work-life balance

Show all
Show less
Back to top