Slade Brockman (WA, Liberal Party) Share this | Hansard source

I too rise to speak on the Banking Amendment (Deposits) Bill 2020—a private senator's bill introduced by the One Nation party.

At the outset I'll start with the area where we can agree, and that is that our banking system is vital to a strongly functioning economy and that confidence in our banking system is vitally important. But I think the history of the last few decades—certainly, going back to well before my memory—is that we do have a strong and well-functioning banking system in Australia. In fact, I would contend that the Australian banking system has been the envy of much of the world over a sustained period of time in terms of its stability and in providing a service to the Australian people. Personally, I would like to see much more competition in our banking sector but I think that, overall, and certainly within my lifetime, we've seen a banking system that has been very safe and secure, and it has underpinned a very strongly performing Australian economy.

The economic shock brought on by the current pandemic situation has been a significant and fundamental economic shock which has reverberated right around the world. We've seen many jurisdictions with significant recessions and significant declines in GDP—some in the double digits. And we've seen not just the Australian banking system but also the international banking system stand up remarkably well. The pandemic was, in a sense, a left-field event. It wasn't caused by an underlying structural problem within the financial system as, for example, the 2008-09 global financial crisis certainly was—so there are different drivers. But in the face of a significant economic shock in the last 12 months we've seen a very strong, reliable and well-trusted banking system.

Senator Roberts—through you, Acting Deputy President Polley—some Australians do choose to keep a store of value in cash. I think that linking that to a fundamental distrust of our banking system is simply a misunderstanding of why those Australians choose to do that. Certainly, it's a gross simplification of the reason some Australians choose to keep a store of value in cash.

The central premise of this bill is that there is an underlying ambiguity introduced into the banking act by the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018. In this understanding of the crisis powers act, the conversion and write-off of normal deposit accounts in the event of a banking failure could be allowed. This is what people mean when they talk about a bail-in. In part, this is based on section 11CAA of the crisis resolution act, which added a number of definitions relating to the conversion and write-off provisions, including the following:

… 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.

It is contended that the 'any other instrument' phrase is open-ended and creates a bail-in opportunity. In looking at this bill, the Senate Economics Legislation Committee took extensive evidence from members of the general public who expressed the views that Senator Roberts expressed here today, but we also took evidence from experts, including the RBA, Treasury and APRA. Senator Roberts spent some time dismissing their views, but we do have a trusted banking system. We have a number of independent regulators within the system, and I think we need to consider their words very strongly when we are talking about making changes to legislation in this area, and their evidence was very clear that there is no ambiguity in this space in need of rectification. Under current laws and regulations, it is not possible for APRA to require banks to bail in deposit accounts. The Reserve Bank, APRA and Treasury all agree that the Banking Act does not imply that losses could be imposed on deposit holders or give APRA any additional powers that could be used to the detriment of retail depositors.

Depositors are in fact safeguarded under a range of protections. There is the Financial Claims Scheme, which the Treasurer may activate in the very unlikely event that there is a bank failure. Upon activation, APRA provides depositors with access to their deposits, up to a $250,000 cap, within seven days. This covers 99 per cent of deposit accounts in full and around 80 per cent of household deposits by value. We also have the depositor preference system, which applies to deposits above the Financial Claims Scheme cap. It means that in the event of a bank failure—again, a very unlikely event—the claims of depositors rank above those of all equity holders and creditors after the government has been reimbursed for any amounts paid out under the Financial Claims Scheme. There are also, of course, numerous layers of prudential regulation and interventions APRA can make to resolve financial institutions in distress, such as recapitalisation, statutory management and transfer powers.

I wish to go into a bit more detail on this issue of 'any other instrument', as set out in the crisis resolution powers bill. As a matter of law, the reference to 'any other instrument' in that act, under subdivision B, conversion and write-off provisions, cannot be interpreted to include bank deposits for the following reasons. It refers to provisions of prudential standards relating to the conversion or writing off. APRA's prudential standards do not require such provisions to be included in bank deposits. The prudential framework cannot be altered to include bank deposits, because APRA is constrained by the objects of the Banking Act and any such attempt would be found to be invalid. Principles of statutory interpretation would require a court to view the general words to be limited by the specific reference to additional tier 1 and tier 2 capital, and only instruments of a similar nature would fall within the general definition. Retail deposits are fundamentally different to additional tier 1 and tier 2 capital.

I wish to quote from a letter from APRA on this issue—for those members of the public who are listening to this debate—to demonstrate the level of confidence that they express in their position and the position of the government on this issue:

… it might be helpful to clarify a recent public misconception about the interaction between APRA's twin objectives – to protect depositors and financial system stability. Following my previous response to this committee of 15 July 2020, APRA's financial system stability objective has been characterised as an alternative to depositor protection that could be used to implement measures contrary to depositor protection (such as bail-in of deposits). This characterisation is incorrect. As the Banking Act 1959 (Banking Act) makes clear, APRA's twin objectives are complementary. This is evident when considering 'depositor bail-in'. A 'bail-in of deposits' would offend both APRA's depositor protection objective and its financial stability objective. A bail-in of deposits would not only cause depositors at the 'bailed-in' institution to lose a portion of their deposit funds, it would reduce the confidence of depositors across the banking system thereby reducing financial system stability. It would also starve authorised deposit-taking institutions of the stable deposit funding on which they rely to provide credit to the economy. This is why APRA has described depositor protection as a paramount objective—it lies at the heart of both of our statutory objectives under the Banking Act. As such, APRA has never sought, nor supports, a 'bail-in of deposits' power.

That's a very clear statement of principle from the regulator, and I think makes it very clear that there is no conflict within the Banking Act. In fact, the twin purposes of the Banking Act are complementary. APRA would never act in this way because it would cause the depositors at the bailed-in institution to lose a portion of their deposit funds. On the other hand it would also reduce financial system stability because it would undermine confidence in the sector and it would starve those same institutions of the deposit funding they use to provide credit within the economy.

Australia has not legislated for the bail-in of deposit accounts because it is contrary to APRA's purpose and objectives. The objectives of the Financial Stability Board bail-in reforms have been achieved without needing to do so. Instead of legislating for deposit account bail-in, APRA requires authorised deposit taking institutions to maintain higher levels of equity than most peer jurisdictions and hold additional loss absorbing capacity, which uses contractual conversion provisions in financial instruments that will convert into equity at a specific trigger point if an entity gets into financial difficulty. These are known as the additional tier 1 and tier 2 capital which can be bailed in or converted.

An additional matter is that terms and conditions of deposit accounts cannot be changed to allow bail-in. Approved deposit-taking institutions are prevented from unilaterally changing terms and conditions for customer deposits to facilitate a conversion or write-off because it would be inconsistent with unfair contract terms legislation under the ASIC Act.

We see there that for a variety of reasons this legislation is unnecessary. It seeks to solve a problem that does not exist. As he finished up there Senator Roberts said, 'If there's nothing to fix then why not pass the legislation?' We shouldn't, in this place, pass legislation to fix a problem that does not exist. I think the very clear words that I have quoted today from APRA, from the Treasury, from what we heard in the Senate Economics Legislation Committee and from the Reserve Bank of Australia all indicate that this is a solution for a problem that does not need fixing and, in fact, does not exist.