Former Wizard boss and 'reality TV star', Mark Bouris has called on the government to charge the big four banks for the taxpayer guarantee on deposits.
Bouris, the current chairman of Yellow Brick Road, has suggested that Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) should have to pay for what is effectively a government safety net, should our banks run into trouble, according to a report in today's Australian Financial Review.
During the GFC, the government announced that it would guarantee wholesale bank debt and depositors funds of up to $1 million dollars, which was later reduced to $250,000. Banks, building societies and credit unions were charged for the wholesale guarantee, but the guarantee on deposits was free. The government's guarantee on wholesale bank debt has netted the Federal government around $4 billion in fees.
Mr Bouris said "It is in the national interest for all banks to pay a fee for the government insurance, because we are [taxpayers] providing it", and added, "At a minimum, the big four banks should pay for the guarantee, and maybe not even get the guarantee."
Reserve Bank of Australia governor Glenn Stevens offered his support for the idea saying, "If the argument is that there should be a charge for the deposit guarantee, personally I'm not adverse to the idea."
Some commentators have argued that there is an implied government guarantee on the big four banks, leading them to be rated higher by ratings agencies. That allows the banks to borrow funds cheaper than their smaller counterparts, making it virtually impossible to compete against them. Standard & Poor's has noted that the big four banks were rated two levels higher that they would otherwise be rated, because of that implied guarantee.
Australian Bankers' Association chief executive Steven Munchenberg opposes the fee, saying any charge would be passed on to depositors. Mr Muchenberg claimed the Financial Claims Scheme allows for the government to impose a fee on the industry if taxpayers were ever forced to pay out depositors, and therefore the risks have been overstated.
That argument ignores the fact that should one of our banks fail, the whole financial system could be put into jeopardy and the last thing the government would want to do in that situation is impose an additional level of fees on them.
Foolish takeaway
It's hard to argue with Mr Bouris' comments. In this supposedly post-GFC world, do the banks still need the government guarantee? The problem for the government is that if they removed it, the big four's credit ratings would likely fall, leading to them facing higher funding costs, which could potentially be passed on to customers.
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Motley Fool writer/analyst Mike King doesn't own shares in any company mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
