It's all smoke and mirrors...........Govt says publicly.
1) AUD250k per account holder per ADI (Authorised Deposit Institution) ie bank, building society & credit union as regulated by APRA.
2) Yes one would get caught out with the dual branding / same ownership as sammy has noted re WBC & STG. APRA in their listing of ADI's notes Westpac, then it's three other subsidiaries (bullet pointed under it) being STG, Bank of Melb & Bank SA). APRA are pretty clear about that....all accounts (from that bank and it's subs) are bundled into one total amount per account holder up to your AUD250k.
3) There is a provision for depositor funds claims over AUD250k, per account holder per ADI. Such would then be third ranking creditor behind your initial AUD250k and second ranking creditor being APRA costs for administrating the Financial Claims System (FCS).Note: APRA in effects acts as the depositors proxy in claims recovery under liquidation.
What they don tell you is:
One thing not advised on the APRA or Comm Govt web pages is the total extent of the Commonwealth Govt's liability under the legislation. When first bought in in 2008, the Governments liability was "unlimited". The Commonwealth Govt changed this in 2010/11 so to limit their liability to the bank's and you and I as depositors to only AUD20bn per ADI failure...
So AUD20bn divided by AUD250k max claim = 80,000 claims. Now I suspect any of the major big four Aust banks, they'd have more than 80,000 depositors (more like millions of depositor clients) so when looking at a bank like Commonwealth Bank who as at 30 June 2020 had circa AUD685bn of customer deposits (on demand. term and other), AUD20bn v CommBank's depositor liability don't go far. If CommBank only had 5m depositor clients (which I think is light on and closer to 10-15m clients), if the FCS up to AUD20bn was paid evenly to all 5m depositors (not as a % ratio to bank balance), then you'd get AUD4,000.00 back initially, not whatever you had in the bank up to AUD250k and you'd be waiting a hellva long time as a third ranking creditor to get the balance back as the bank's assets are sold off / debts recovered over time etc.
Pyramid Building Society collapsed in 1990 and last distribution was 2006.
HIH Insurance failed in 2001....final distribution to creditors March 2021.
Don't expect to get all your money back any time soon if this happened to CBA or any large Aust Bank.
The key thing here for me is not the value of the Govt Guarantee and ability to pay back (some monies) to depositors but which bank , credit union or building society the Commonwealth Govt would let fail. The govt guarantee isn't for the big bank's...it's for the small ones and public perception of "a guarantee".
If a small regional bank / other FI with only a few branches, low client numbers, small deposit base and no real impact on the wider Australian banking system was about to fail, I suspect the RBA/APRA/Commonwealth Govt would try and find a buyer for that bank first, but if a buyer couldn't be found, then I suspect unless that bank was in a marginal government electorate, they'd let it fail, activate the FCS and pay out a moderate amount of tax payer dollars to depositors then become a creditor in liquidation.
It'd be a very different matter with one of the Big 4 Australian Banks. As noted above, CommBank has AUD685bn (as at 30 June 2020) of depositor funds on their book. No Commonwealth Govt wants to pick up that liability nor incur the wrath of the those clients and voters who lost most of their savings with that bank. Further and more important is the systemic risk to the Australian banking sector and economy should a major Australian bank fail. They are all interconnected via intraday loans, exchange settlement accounts and counterparty risk for financial markets instruments...If one of them didn't open tomorrow, the other banks would not be able to lend and borrow between each other, transfer monies between each other as trust would disappear in a heart beat with billions locked up in the bank that failed that the other banks need. ATM's and merchant facilities we use for purchases would shut. It's a tad more detailed than that but I'm trying to keep it simple and short.
Such an impact would have devastating consequences for not only Australia, but NZ where our big 4 bank own NZ's biggest four banks. The Commonwealth Govt, APRA and RBA would hopefully see this coming and would not let one of the major bank's fail. The Commonwealth Govt would drop the "4 Pillars" policy and get the failing bank a dance partner to ensure no banking failure. The US financial system came to a near grinding halt on the Lehman's failure and their economy and financial system dwafts our. A bank like CommBank has an asset base nearly twice the size of Lehman...so image the impact on Australia would be too big to imagine...The Govt of the day could not let it happen. Our Big 4 or too big to fail.
The Commonwealth Govt guarantee (FCS) was to calm the public in late 2008...the very early ripples of a possible run on the Australian banks was being seen in early Oct 2008. That's a post for another time as this one is long enough.
