Mar 25, 2020
Welcome to Finance and Fury, the Say What Wednesday edition. This week, two questions – both from John’s about banking system security -
First John: I know you’ve spoken about this before, but would be interested to hear about if you think there could be liquidity problems with our banks here in Aus, ie a run on the banks like we have seen on TP etc and in Scotland etc during the GFC. Is our money safe in the banks, or in my case offset accounts with non bank lenders?
Second John: Just a question I’m relation to bank savings. Do you think our savings ‘Australians’ is at risk of being confiscated if some banks were to collapse? I am aware there are Government Guarantees of up to $250k. But with huge stimulus packages in place and potential many more, would it be possible they wouldn’t be able to guarantee this?
Great questions – Run through –
Go into massive detail on a few episodes – a couple of them are called if you want to look them up – back in July 2019
Human psychology on bank runs –
Are banks safe – Depends – may not collapse but may charge you interest to store money with them
Is your money safe in banks - other factors like bail ins and deposit schemes
According to an IMF paper titled “From Bail-out to Bail-in: Mandatory Debt Restructuring of Systemic Financial Institutions”:
the end game outlined in the IMF's post – their ideal world — one without cash and to change human behaviours financially to act as ‘homoeconomicus’ – the rational individual that the models require to work – by rational – what they think is the best decision to maximise utility – how most economics works – what would an economist do – most people aren’t economics and don’t do this – nor should they – hard to measure utility across individuals – different values
But how good are government guarantees
Is our money safe in the banks, or in my case offset accounts with non bank lenders?
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