The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Thursday, October 4, 2012

APRA, RBA and Treasury recommend that Future Fund manages new bank tax

Another exclusive new story from John Kehoe and myself in the Australian Financial Review today following our breaking Freedom of Information search on the RBA (see post below):

Future Fund ‘best’ for bank guarantee billions 
Australian Financial Review 

The Future Fund was identified by The Council of Financial Regulators as the most suitable custodian to manage billions of dollars that could be raised through a new fee on banks for the provision of taxpayer insurance on deposits.

As revealed by The Australian Financial Review on Thursday, Reserve Bank of Australia governor Glenn Stevens, Treasury secretary Martin Parkinson and Australian Prudential Regulation Authority chairman John Laker agreed at a meeting last year that the federal government consult publicly on the merits of introducing a fee on banks for taxpayer guarantees on deposits.

Internal RBA analysis released to the Financial Review under Freedom of Information laws showed a fee on banks of 0.05 of a percentage point would collect $37.8 billion over 25 years.

While the government is believed to not be pursuing the March 2011 recommendation to hold a public consultation on the subject, economist and former RBA board member Warwick McKibbin said on Thursday that any implicit or explicit taxpayer guarantee of banks should be priced.

“It strikes me that it makes sense to price things properly and if they’re getting some sort of return from the government guarantee, then they should be paying for it,” Professor McKibbin said.

Among the 11 highly redacted documents covering 97 pages of analysis on the taxpayer guarantee of deposits, is a document that names the Future Fund as the most likely manager of any funds raised through a new insurance fee on banks.

It said using the existing government pension fund would minimise the cost of managing the funds raised.

“The intention was to incorporate the FCS [Financial Claims Scheme] fund into an existing fund, such as the Future Fund,” council minutes from a meeting on March 16, 2011 state.

In a separate RBA document it was recorded that the funds would need to be invested in liquid assets with low credit risk, so they would be available to compensate insured depositors if required. It assumes a 5 per cent rate of return.

Treasurer Wayne Swan’s office was yet to comment on the report.

Shadow treasurer Joe Hockey, who has called for a wide sweeping inquiry into the financial system, and previously advocated that taxpayer guarantees of banks be fully priced, declined to comment on the proposal.