Government Deposit Guarantee
Invest with Confidence
The Government Deposit Guarantee Explained
In response to current global economic conditions the Prime Minister of Australia announced in October 2008 a scheme to guarantee deposits held in all Australian Banks, Building Societies and Credit Unions.
As extra protection measure for the already strong Australian banking system, and to enhance confidence the scheme ensures that depositors will be guaranteed repayment of their funds in the extremely unlikely event that any banking institution fails. Funds are guaranteed for a period of 3 years from November 28 2008.
This brochure explains how this affects you and the deposits you may have invested in the Greater Building Society
What is the Government deposit guarantee?
Deposits in APRA regulated Authorised Deposit-Taking Institutions (ADI's) are guaranteed by the Australian Government. This means that a full Government guarantee stands behind deposits in all Australian financial institutions – banks, building societies and credit unions.
What sort of depositors are covered?
The guarantee applies to all deposits held by legal entities, including individuals, partnerships, companies, trusts and government entities regardless of where the depositor resides or is based.
Are there any limits on the guarantee?
The guarantee applies to deposits of up to a threshold of $1 million per depositor. Deposits of less than $1 million are guaranteed at no cost.
What if I have more than one account?
The $1 million guarantee threshold applies to the combined value of deposit accounts you hold with a particular institution.
What about joint accounts?
For the purposes of calculating a depositor's total amount of deposits with a particular institution, the value of a joint account is split equally between the account holders.
Therefore, a joint account in two names with a value of $1 million would be split equally into $500,000 entitlements between the account holders for the purposes of determining a depositor's total value of deposits.
What if I have more than $1 million invested with one institution?
The first $1 million of your funds will be guaranteed at no cost under the scheme. Amounts over $1 million can be optionally guaranteed upon payment of a fee to the Reserve Bank of Australia, should your institution opt-in to this part of the scheme.
Is the Greater providing depositors with the option of guaranteeing their funds over $1 million?
Yes, the Greater will offer the guarantee for deposit holdings over $1 million to customers electing to pay the applicable fee.
Therefore, funds held with the Greater up to an amount of $1 million will be guaranteed under the scheme at no cost. Amounts held over the threshold amount will only be Government guaranteed If the applicable fee has been paid.
How much is the fee, how is it calculated and how is it charged?
The fee for deposits invested with the Greater above the $1 million threshold is currently 1.5% per annum. The accounts on which you would like the guarantee offered must be specifically nominated.
The fee is calculated on the total average funds over $1 million you hold in your nominated account/s.
It is calculated and charged monthly, in arrears and debited from an account you nominate.
Will my funds over $1 million still be secure if I deposit them with the Greater Building Society and elect not to pay the fee?
Yes. The Greater meets the same strict, legally enforceable standards as banks, under the Banking Act and strict oversight by the Australian Prudential Regulation Authority (APRA) and continues to have an investment grade BBB rating from Standard & Poors.
Even prior to the design of the Government Deposit Guarantee Scheme the Australian Government, via regulatory agencies such as APRA, already had strict measures in place to help prevent the unlikely event that a financial institution faces stress or fails.
APRA's regulatory regime is designed to ensure that depositors do not lose money and their strict rules on safety and capital will continue to apply to all banks, building societies and credit unions to the same high standards in place prior to the Deposit Guarantee Scheme.
What are some examples of these strict measures?
APRA requires that all financial institutions meet minimum levels of Liquidity and Capital.
In simple terms, as the Greater operates as a mutual, the vast majority of its capital is held in the form of retained earnings (after-tax profits). Capital acts as a buffer to absorb any unanticipated losses and enables the Society to continue operating while any unforseen problem is being addressed, and still honour it's obligations to depositors and creditors.
As at October 2008, the Greater's capital levels are double the minimum required by APRA.
Similarly to capital, APRA requires that the Greater must hold minimum liquid assets (i.e. cash, or readily convertible to cash) to ensure we can meet our payment obligations (particularly those to our depositors) when they fall due.
As at October 2008, the Greater's liquid assets are substantially in excess of the minimum required by APRA.
How have current global economic conditions affected the Greater?
The recent turmoil in international financial markets has largely stemmed from losses suffered by international lenders engaging in "sub-prime" lending. It involved lending funds to borrowers without due diligence being fully conducted into their ability to repay the debt.
Whilst the Greater is not completely immune to the extraordinary volatility of the markets, it has never engaged in "low doc", "no doc" or "sub prime" lending and continues to have very low loan default rates in comparison to industry averages.
In the 2008 Performance Survey on Building Societies and Credit Unions recently prepared by KPMG, the following comments were made in relation to the effect the global credit crisis has had on mutuals.
"The mutual sector has little or no exposure to overseas markets or large corporates. They largely operate conservatively in the markets they know well"
"The traditional focus of the mutuals on customer deposits has placed them in a strong position to weather the global credit crisis"
KPMG's full report can be viewed at www.kpmg.com.au/Portals/0/KPMG BSCU survey 2008.pdf
How do I opt in to the Government Guarantee on amounts over the $1 million threshold?
If you wish to do so please contact our Business Retention Unit on (02) 49219304 or (02) 49219560.
