I read it and this paragraph caught my eye and I did some research on Open Bank Resolution. I knew a bail-in existed but didn’t know it was called OBR.
“We believe the Open Bank Resolution (OBR) framework reduces the propensity of the sovereign to support its banks. The OBR framework allows for the imposition of losses on depositors and senior debt holders to make up capital shortfalls if a deposit-taking institution fails.”
So what I learned was
- as a depositor I’m expected to assess a bank’s liquidity and risk. Sorry Snoopy my eyes glaze over when I read the calculations in your posts.
- I may need to consult a registered financial adviser (not one employed by the bank) to help me decide whether to continue banking with ASB. Yeah right!
- I am an unsecured creditor with the bank, not a depositor. I have made an unsecured loan to the bank, and if it fails I am treated just like an unsecured creditor is with any other failed business.
- I am happy to accept risk in the sharemarket but I didn’t realise that I need to assess risk with my bank. I accept that finance companies are risky but my reading of the OBR policy is that a bank is now in the same category as finance companies = assess risk.
- It’s my responsibility to assess risk and make choices. If my bank fails I made a bad choice - tough.
- The Australian banking inquiry title says it all - Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Risky lending, liar loans, bribes, involved in multiple scandals- the same behaviour that led to the GFC is being repeated. No lessons learned or restraints put in place.
- Where can I put my money that is safe?
https://www.rbnz.govt.nz/faqs/open-b...on-policy-faqs
Why should depositors bail-out banks?
The OBR policy is designed to ensure that first losses are borne by the bank’s existing shareholders. In addition, a portion of depositors’ and other unsecured creditors’ funds will be frozen to bear any remaining losses. …….. The primary advantage of the OBR scheme, however, is that depositors would have access to a large proportion of their balances throughout the process. This contrasts with what would happen under a normal liquidation, where depositors might not have access to any of their funds for a significant period.
https://www.rbnz.govt.nz/regulation-...ank-resolution
This ‘OBR Made Simple’ fact-sheet (PDF 1.4MB) explains OBR and how it works.
Where is the safest place for my money?
Every financial decision carries risk. You may need to consult a registered fnancial adviser to match your investments to your willingness to take risk. To assist in assessing potential risks, the Reserve Bank publishes a Financial Stability Report twice a year, in May and November.