New Banking Legislation

From Brunswiki

Terry O'Donoghue, 13 Nov 2019

Comrades, I have concerns about two bills, one already passed into law by the federal parliament and the other under review by the a parliamentary committee [1]

The two bills are:

Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018 and Currency (Restrictions on the Use of Cash) Bill 2019.

The first bill gives the banks and government the right to convert anyone’s bank deposits into shares in the bank. In effect, "bailing in the bank", rather than the government having to "bail out the bank", if they feel the bank is at risk of folding.

The second bill is to restrict us from spending any more than $10,000 in cash. If a cash transaction is over $10,000 it must be done via EFT. And the task force that wrote the paper in favour of this legislation are already trying to reduce this amount to $2000 even before this bill is passed.

At face value, this bill targets criminals and terrorists so they cannot launder money, and to combat tax evasion. But, as seen below, there is ample evidence that the big banks are responsible for the largest amounts of money laundering today around the globe.

Taken together, I believe the "bail in" laws in conjunction with latest “dark economy” legislation do nothing but empower the banks and force people to keep their money in the bank, possibly even with negative interest rates, with no surety of withdrawal if the banks fall on hard times.

With the economy looking like we are poised for a recession, people are being set up to bail in the banks. And don't assume that the so called Government Bank Guarantee will save you.

Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018

This bill was passed in February 2018. The government says it only applies to large depositors, such as Self Managed Super Funds, but when pressed to include wording to this effect in the legislation, that it will not include individual, or mum and dad, depositors, they refuse to do so. And why?

The other issue with this bill is that it was passed on the 12th of February 2018 when there were only 8 senators in the House at the time. There are 76 senators, and this bill was snuck through to avoid any debate on the matter.

Difference Between Bank Bail-Ins and Bank Bailouts

With Bail Outs – the government puts up the money to stop a bank from going under.

With a bank bail-in, the bank uses the money of its unsecured creditors, including depositors and bondholders, to restructure their capital so it can stay afloat. Basically, they convert deposits into shares. This stops depositors withdrawing their money and a subsequent “run on withdrawals” that could sink the bank.

Senator Amanda Stoker (LNP), a top barrister who has been a prosecutor as well as a judge’s associate in both the Queensland Supreme Court and High Court of Australia, explained in a 5 November 2018 letter to a constituent:

“The legislation facilitates bail-in as a type of resolution power which is available for dealing with financial institution distress. This was done after the G20 leaders endorsed a new Financial Stability Board standard for Total Loss-absorbing Capacity. Specifically, it builds on the Key Attributes which specifies that Financial Stability Board jurisdictions should have in place legally enforceable mechanisms to implement a bail-in (my emphasis). The purpose of the Total Loss-absorbing Capacity standard ensures there are mechanisms in place to stop the ‘domino effect’ and reduce loss on [sic] bank shareholders, creditors and the Government.”

This is very clear it does not exclude anyone.

Currency (Restrictions on the Use of Cash) Bill 2019

This bill in conjunction with the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Act 2018, sets us up, to bail in banks if they get into trouble, and if we wish to pull out our money, we can’t, and if we could get our money out, it is illegal to spend it.

This bill is based upon recommendations from the Black Economy Taskforce.

The taskforce was headed up by Michael Andrew, former head of KPMG (one of the big 4 auditors). I mention this, because the big four auditors are pushing an agenda to shore up all of the "too big to fail" financial institutions, not only in Australia, but worldwide, in the event of a major financial reversal.

The author of the Black Economy Paper was head of one of the big four auditing companies (KPMG) that are closely aligned to the banks. The same company (KPMG) is already asking for the government to lower the cash amount to $2000. These legislative manoeuvres are directly as a result of the directive from the IMF, which is purely acting in the interest of the “too big to fail banks”.

The Big Four Auditors – quoting Wikipedia

The Big Four (KPMG, Ernst & Young (EY), Deloitte and PricewaterhouseCoopers (PwC)) are the four biggest professional services networks in the world, offering audit, assurance services, taxation, management consulting, advisory, actuarial, corporate finance and legal services. They handle the vast majority of audits for public companies as well as many private companies.
Until the late 20th century, the market was dominated by eight networks (known as the Big 8) but this gradually reduced due to mergers and the 2002 collapse of Arthur Andersen, leaving four networks dominating the market in the early 21st century.
In the UK in 2011, it was reported that the Big Four audit 99% of the companies in the FTSE 100, and 96% of the companies in the FTSE 250 Index, an index of the leading mid-cap listing companies.[1] Such industry concentration has caused concern and calls for the Competition and Markets Authority (CMA) to consider breaking up the Big Four. In October 2018, the CMA announced it had launched a detailed study of the Big Four's dominance of the audit sector.

The big four auditors are the sole auditors for all the banks, and they generate 85% of their income, not through auditing, but through assurance services, taxation, management consulting, advisory, actuarial, corporate finance and legal services to the big banks.

As if they are going to give a bad report to the businesses where they derive the bulk of their income. Prior to the GFC, not one bank that went under failed an audit within 18 months of their collapse.

Now remember, the head of one of the big four auditors authored the paper on the Black Economy. The document the government is relying upon to push through this legislation.

APRA or another government body should be carrying out independent audits of the banks in Australia, especially since, if one fails, they will have a catastrophic impact on our economy. In banking world jargon, a systemically important financial institution (SIFI) or systemically important bank (G-SIB) is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. They are colloquially referred to as "too big to fail".

The answer is not increase the power banks have, but rather clip their wings and reduce the absolute monopoly they have on the Australian financial landscape. This, I believe is the crux of the matter. Rather than legislating to protect the big banks, we should be legislating to protect the Australian economy from the big banks, in the event one of them fails.

Why should we sit back and allow a private institution to have the ability to cause economic devastation to our economy? Shouldnt we instead, break them up to a size that cannot cause this kind of disaster, so they are no longer in the category of "too big to fail"?

Banks involved in money laundering

There is also ample evidence that the big banks are responsible for the largest amounts of money laundering. One example is HSBC in the US. What are the government’s plans to stop big banks from money laundering? HSBC, Europe’s biggest bank, paid a $1.9 billion fine in 2012 to avoid prosecution for allowing at least $881 million in proceeds from the sale of illegal drugs. In addition to facilitating money laundering by drug cartels, evidence was found of HSBC moving money for Saudi banks tied to terrorist groups. Even though federal investigators found evidence “that senior bank officials were complicit in the illegal activity,” no HSBC executives faced charges for their actions.

Despite the heavy financial penalty for HSBC following the scandal, eleven banks have incurred higher fines than them during the last decade.

MarketWatch recently revealed that banks have been fined a total of $243 billion since the financial crisis with HSBC paying out $4.5 billion.

Recently, “We’ve heard evidence of appalling behaviour by Australia’s major banks and financial planners from the past decade, including alleged bribery, forged documents, repeated failure to verify customers’ living expenses before lending them money, and misselling insurance to people who can’t afford it.” -The Guardian

It seems they are not only too big to fail, they are too big to jail.

The so called Government Bank Guarantee

"The Financial Claims Scheme (FCS) is an Australian Government scheme that provides protection to deposits in banks, building societies and credit unions, and to policies with general insurers in the unlikely event that one of these financial institutions fails. The FCS can only come into effect if it is activated by the Australian Government when an institution fails. Once activated, the FCS will be administered by the Australian Prudential Regulation Authority (APRA)."About Financial Claims Scheme

There is a widespread misconception (even with ASIC) that bank deposits are currently guaranteed for at least up to $250,000.

The Financial Claims Scheme (FCS) through which APRA administers the guarantee has not yet been activated, as the FCS website clearly states: "If the FCS is activated by the Australian Government following the failure of a banking institution, APRA will endeavour to pay most account holders, or enable them to access, their FCS payments within seven calendar days."

The FCS can only come into effect if it is activated by the Australian Government when an institution fails. Once activated, the FCS will be administered by the Australian Prudential Regulation Authority (APRA). That is, when a bank fails, i.e. becomes insolvent, the Australian Government or APRA then has the discretion to decide whether or not to activate the FCS.

It should be emphasized that Bank deposits are not protected or guaranteed at all. If the government or APRA decide it is not in their best interest they can let the bank fail, without stepping in to bail out depositors – it is at their discretion.

The Labor Party must not support these bills in the interest of the citizens of this country and our children and our grandchildren. We are giving the big banks too much power in an already heavily monopolised industry in our country.

Comrades, I would love to hear your thoughts.

Terry O'Donoghue

(→ comments)

(← up)