John Williams (NSW, National Party) Share this | Link to this | Hansard source

My question is to the Minister representing the Treasurer, Senator Conroy. In view of the federal government’s guarantee of deposits held by banks, credit unions and building societies, will the same guarantee be extended to other financial institutions, including debenture-issuing companies that are securing against real properties and are at arm’s length?

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

As I have mentioned, on Sunday the Prime Minister announced that the Australian government would guarantee all bank deposits in Australian banks, credit unions and building societies. The Prime Minister also announced that the Australian government would guarantee term wholesale funding by Australian banks. The government has been working for several months on the details of its Financial Claims Scheme for depositors. We have now decided that the best approach is to cover all deposits, whatever their size, in all Australian banking institutions, for three years. This measure puts our banks on a similar footing to other banking systems around the world. It remains the case that our banks are strong and well capitalised. But the government understands that many Australians observing developments overseas may be concerned about their savings. Our job, in this time of unprecedented turbulence, is to ensure that the confidence in Australian financial institutions is maintained.

The guarantee will cover all the deposits of Australian-owned banks, Australian subsidiaries of foreign-owned banks, building societies and credit unions. APRA advises that the Australian deposits that are covered by the guarantee on deposits are around $800 billion. The government does not expect that it will be called upon to pay out these guarantees. Our banks are strong and well capitalised. No depositor of an institution supervised by APRA—or, before that, the Reserve Bank—has ever lost money.

The following will be covered: deposits held in Australian-owned banks, Australian subsidiaries of foreign-owned banks, building societies and credit unions; any type of deposit account, savings accounts, cheque accounts and term deposits; deposits held by businesses, household companies and trusts; and deposits held in any currency. It does not include deposits of institutions not regulated by APRA. It does not include bank bills or certificates of deposits; these will be covered by the wholesale funding guarantee.

The government does not expect that it will be called upon to pay out these guarantees. As I have said, our banks are strong and well capitalised. Deposit-taking institutions are required to hold sufficient capital against their deposit liabilities, and depositor preference means that depositors have the first call on an institution’s assets in the event that it fails. This means that it is highly unlikely that depositors’ funds could not be recovered through the liquidation of the failed institution. In the event of a failure, the government would provide depositors with 100 per cent of the funds through the Financial Claims Scheme. APRA, as the scheme administrator, would then look to recover those funds in liquidation.

The Prime Minister also announced on Sunday that the Australian government would guarantee term wholesale funding by Australian banks. This step will ensure that our banking institutions have the best possible access to global capital markets. Developments in global financial markets over the past year have made it more difficult for our financial institutions to raise funds— (Time expired)

John Williams (NSW, National Party) Share this | Link to this | Hansard source

Mr President, I ask a supplementary question. In all seriousness, this really is an important issue. My supplementary question goes to these debenture-issuing companies. I know of one group that has lent up to $1.3 billion, 40 per cent of it to agricultural properties. They need to have some assurance that their investments are safe; otherwise, those investors will withdraw their money and people will simply have to sell up or pay up. Will the minister look at these debenture-issuing companies to see that they can get the same guarantees as banks, building societies and credit unions?

Stephen Conroy (Victoria, Australian Labor Party, Deputy Leader of the Government in the Senate) Share this | Link to this | Hansard source

As I have said, the government has guaranteed the deposits in Australian-owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years. The guarantee does not extend to debenture issues. Following a number of high-profile corporate collapses in recent years, the government acted earlier this year to improve retail investor protection in this sector through improved disclosure, investor education and access to appropriate advice. These changes have been implemented through ASIC’s regulatory guidance. Legislative amendments are also under consideration. Considerable work has already been undertaken by ASIC in investigating, collecting and examining evidence to enable it to formulate and quantify claims for disciplinary action against relevant directors— (Time expired)

Louise Pratt (WA, Australian Labor Party) Share this | Link to this | Hansard source

My question is to the Minister for Superannuation and Corporate Law, Senator Sherry. Can the minister update the Senate on the impact of the current global financial crisis on Australian superannuation accounts?

Nick Sherry (Tasmania, Australian Labor Party, Minister for Superannuation and Corporate Law) Share this | Link to this | Hansard source

I thank Senator Pratt for her question. I know this is an issue on which many millions of Australians, having received their superannuation fund statements in recent months, are focused and about which they are concerned. As I have indicated in this chamber on a number of occasions, events in global financial markets caused by the US subprime crisis have added significantly to uncertainty and to volatility in global markets, the share market in particular. I and this government certainly understand the concern and worry of Australians with respect to their superannuation savings and the volatility that has been seen in recent times, whether or not their superannuation is in a fund as a result of compulsory contributions or voluntary contributions, which many Australians make. But I stress that superannuation is a very long-term investment. In these circumstances people do need to remain calm. This is a very important aspect of the superannuation system. In a mature system an individual, up to the point of retirement, would normally expect to be a member of that system for 35 to 40 years. And, even when they have reached the point of retirement, the majority of Australians will still be in the superannuation system, depending on actuarial point of death, for another 20-plus years. So, they are going to be in the system for 35 to 40 years and another 20 years after retirement.

The pool of funds in our superannuation system has grown strongly. As at the end of June this year it stood at $1.17 trillion. That pool of savings is in itself a major strength in these turbulent financial times. And that asset figure of $1.17 trillion is double the asset figure of five years ago. One dollar invested in superannuation 10 years ago would today be worth $2.07. So, even with the recent market adjustments downwards, a $1 investment in superannuation 10 years ago is worth $2.07 today. Let us take a 20-year return. If moneys were placed in a superannuation fund as at 30 June 1988, more than 20 years ago, a $1 post-tax contribution to superannuation is estimated to be worth today around $5.50. That illustrates the growth over time of superannuation investments.

I know that as at last Friday, for example, the Australian share market had dropped approximately 37 per cent since its high of 6,854 in November last year. Other world markets have experienced similar, if not bigger, percentage falls. What is important is to look at history and what has happened when a market has fallen. We do know historically that markets have recovered from major corrections. They recover over time; it depends on the circumstances. After 9/11 in 2001 the market suffered a 16 per cent fall over the period of a week. Within approximately three months that market had recovered. During the Asian currency crisis in 1997 the market fell by 21 per cent. But, again, the markets recovered— (Time expired)