Small banks plead for flat fee

Australia’s smaller banks have warned the government that if it implements the planned insurance levy on bank deposits, the fee must be charged at a flat rate and not vary based on the size or credit rating of the institution.

The government’s intention is to begin charging an insurance levy of 0.05% on bank deposits worth up to $250,000 in order to protect depositors in case one of the big banking institutions fail – a strategy that is expected to raise around $700 million over the first 18 months.

In 2008, when extraordinary measures were introduced by the government to support the banks in light of the global financial crisis, the bigger banks were charged a lower fee due to their higher credit rating and less risk for the taxpayers providing support. Meanwhile, the smaller banks were charged at a higher rate because they had lower credit ratings.

The smaller banks have argued that, should the government impose a variable fee instead of a flat fee, the competitive advantage of bigger banks including Westpac (ASX: WBC) and Commonwealth Bank (ASX: CBA) would only grow, which would prove detrimental to smaller banks such as Bank of Queensland (ASX: BOQ).

The banks have become heavily overpriced and are unlikely to deliver market-beating returns. Instead, why not discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis? Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.