theaustralian.com.au
Tonnes of cash were salted away
David Uren and Lenore Taylor From: The Australian June 21, 2010 12:00AM
"Tonnes of cash were salted away David Uren and Lenore Taylor From: The Australian June 21, 2010 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share
Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these? At one stage, the Reserve Bank was forced to order another $4.6 billion in $100 notes. Picture: Luzio Grossi Source: The Australian
IAN Harper, one of Australia's leading financial economists, spent much of the weekend of October 11-12, 2008, reassuring journalists that Australian banks were safe.
Harper was an expert: he had been a member of the Stan Wallis financial inquiry in the mid-1990s, which had designed the system of banking regulation.
Harper explained that there was as yet no explicit government guarantee of bank deposits; indeed the Wallis inquiry had recommended against one, leaving Australia, along with New Zealand, the only developed economies with no formal insurance.
But he insisted the banking system was well capitalised and that even without a government guarantee, depositor funds were safe.
He explained that the Australian Prudential Regulation Authority already required banks to keep enough capital to cover any likely level of bad debts. More importantly, the banking legislation provided that, if a bank failed, depositors would rank ahead of all other creditors. There was absolutely no reason for concern.
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But there was something about the calls Harper was getting from reporters over that weekend that worried him.
"There was a whiff of panic," he recalls. It had been building all week. He had no doubt that the government and the Reserve Bank would be able to manage a run on cash, but it might take days to arrest. Panic has been an unpredictable force in the history of banking. And the instant world of electronic banking had never been tested with a full-scale crisis of confidence."
Dominos? Don't let those three legged cats convince you to sell your gold. |
