Banks outraged over deposit levy

Former CBA boss labels levy "tax on whole economy"

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 2, 2013 10:38 am AEST

Australia's major banks have slammed the federal government's planned insurance levy on bank deposits.

Australian Bankers' Association (ABA) chief executive Steven Munchenberg says the up-front fee is totally unnecessary. "It's raising a pool of money that is highly unlikely to be ever needed and it's going to affect the deposit market at a time when regulators and ratings agencies are putting pressure on banks to increase their deposit funding," he told the Australian Financial Review (AFR).

The government wants to impose a 0.05% insurance levy on deposits of up to $250,000, which would be used to protect depositors should one of the big banks fail. The government currently guarantees these deposits for free.

Former Commonwealth Bank (ASX:CBA) chief David Murray has told the AFR that it's the equivalent of the goods and services tax (GST) and would have an economy-wide hit. "Any tax you put on the banking system, because the banking system is the financial intermediary to the whole economy, it's the same as putting a tax on the whole economy," Mr Murray said.

National Australia Bank (ASX:NAB) boss Cameron Clyne was more supportive of the levy, suggesting raising revenue as a contingency for the future was the right approach. However, he added that it would increase the cost of credit and slow business activity. He also suggested that politicians were pandering to the 'bank-bashing' brigade, without a proper analysis of what the levy would do to the banking system.

Smaller banks, such as Bank of Queensland (ASX:BOQ) and Bendigo and Adelaide Bank (ASX:BEN), are likely hoping for a flat fee rather than one based on size, credit rating or risk. That could see the smaller banks forced to pay a higher rate, giving the majors another advantage over the smaller competitors.

Foolish takeaway

Banks, their investors and savers look to be those in the firing line, which includes just about everyone in Australia with money in the bank or superannuation.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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