Are Australian Banks Safe – Have a Plan just in case they are not

Right now my super funds are in the big four banks sitting in transaction accounts earning from 6.9% to 7.75% interest. I have Google Alerts set to send me any news item related to Australia’s Big Four Banks as they appear on the Internet. I’m watching and waiting!

I have Internet access to each account and have the ability to move large amounts of money around electronically if I have to. All the banks are bricks and mortar too and the branches are close by.

I did take advantage of the Macquarie Banks 8.88% for 8 months term deposit. I put a large percentage of my money in the term deposit. But with the run on Macquarie several days ago I pulled my money out losing a months interest.

The suspension of the shorting rule may have stopped the speculators shorting the stock. But it was enough to make me move my money back into the Big Four.

I have once again split the money approximately evenly between them.

I’d prefer to be in about 10 banks each with 10% but I believe the Government is more likely to do what other governments around the world are doing and rescue banks they consider too big to fail.

However I am still prepared to go into government bonds if I have too. The only danger is things will move too fast.

I am not saying this is the answer. But I believe if I can keep my money fairly liquid I have a chance to keep my capital intact should things take a turn for the worst.

Our Government keeps telling us our banks are sound and we have much tighter regulations than other countries but….

  • NAB has not been exactly straight with the markets about its CDO exposure. NAB has written down A$1M of CDO’s earlier this year.
  • Westpac apparently has the biggest exposure to Low-Doc Loans with about 5.5% of its loan book estimated to be comprised of them.
  • ANZ has been dogged by high bad debt provisions and the Opes Prime mess.
  • CBA seems to be relatively unscathed by the sub prime melt-down.
  • Macquarie Bank was severely affected by shorts driving its share price down.
  • Fixed interest rates on many mortgages taken out in 2005 are due to be rolled over and will now attract interest payments up to 50% higher than what they were. Even if the RBA lowers rates and the banks pass it on, some people could be in strife. This will affect the banks profitability.
  • Wayne Swan’s efforts to help out the non-bank lenders is designed to introduce competition into the banking system when it can least afford it. It seems a little crazy to me giving A$4B in government handouts to a failed non-bank lending sector at a time when we should be trying to keep our big banks strong. Is this an Aussie version of Fanny and Freddy that will become our sub prime crisis in a few years time?
  • Deposits in Australian Banks are not insured like they are in the USA. If a bank crashes, you lose your money on deposit. (unless Rudd comes to the rescue)

On the other hand Tony Lewis from Lewis Securities Limited said, “The Australian economy is highly rated, our four major banks are some of the very few banks in the world that are rated AA or better.”

“While banks in the US and UK are being decimated by the global crunch, there are only 18 AA-rated banks in the world, and four are in Australia. I think you can regard the AA Australian banks and their securities as “sleep-at-night’ money,” he says.

So the picture whilst hopeful is not clear. It’s the only game in town right now I think apart from government bonds or gold. I am taking a punt that the big four banks will survive, or our fearless leader Mr Rudd will come to the rescue. But I still want room to move if he doesn’t. That’s why I am keeping my money liquid and not chasing higher returns in term deposits. I’m hoping I can act on a rumour of any potential bank failure and use the Internet access to move the money quickly to somewhere else.

It may seem like paranoia but I’d rather take action to protect the money I have than wait to see what a government might do. At least this way I have some control and I am not relying on some financial planner either, telling me not to panic because things will work out in the end.

The circle will turn and when it does if I am able to protect my nest egg I can then invest in any future upturn in the markets to maximum effect.

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