Julie Bishop was very straightforward in speaking about the current financial crisis amongst Australian Banks and non-banking institutions (credit unions and building societies) at the AFA High Flying Networkers and GenXt Breakfast at the Tawarri Lodge in Nedlands, on Friday 31st October, 2008.
She made a key point: there is no exit strategy being put forward by the Rudd Government – just that at the end of three years, the guarantees will cease.
This will almost certainly “guarantee” a “flight to quality” from those smaller financial institutions to the four big banks, which will then be worse than the current situation between them now.
She likened Rudd & Swann to being caught on sticky fly paper – not able to get both feet off the ground at the same time, to be able to exit their “strategy”.
She was adamant that the Australian Banking system did not need the unlimited guarantees that were offered and it placed one second tier bank in the position of having to move $600,000,000 ($600 million) into one of the ‘four pillars’ – so that they could be absolutely sure that the cash was covered by the Government’s guarantee.
The destabilisation of the Australian financial system was far more related to the manner in which the Federal Government had handled the situation than due to the sub-prime crisis, according to Bishop.
It initially was sparked by a little unrest beginning when depositors in building societies and credit unions began moving to the major banks.
The offer of the guarantee specifically excluded foreign banks (for example Deutsche Bank) even though they are regulated by APRA and they are ADTIs. This accelerated the crisis rapidly, she concluded.
Julie Bishop’s rating: A Tall Poppy.