Most Australians do not realise that the Reserve Bank of Australia ‘RBA’ is the safest bank in Australia and yet it refuses to allow the general public to open a deposit account.
Instead of the 100% safety and convenience of an account at the RBA the general public are forced to save in the form of unsecured loans to private banks.
Yes, at law, that is what your ‘deposit’ account at a private bank is.
Nothing more than an unsecured loan to the bank which you can terminate on demand.
As you might expect, an unsecured loan is not very secure. That lack of security is well understood as the history of bank runs and bank busts makes clear. The reason your unsecured loans to banks are not secure is simple. Banks use your unsecured loans to support a business model by which they create far more ‘at call’ claims than they have ‘at call’ or liquid assets available to honour them.
A bank ‘run’ is nothing more than a bunch of people demanding that a bank honour its ‘at call’ liabilities to them all at the same time. Liabilities that the bank simply cannot honour because it does not maintain ‘at call’ assets to match the ‘at call’ loans it has accepted.
If you think this bank business model sounds like a scam you are right but the banks managed to get parliament to make it legal so it is a thoroughly legal scam.
All the best and most profitable scams are thoroughly legal.
But what about the bank deposit guarantee?
When the private banking business model or ‘legalised scam’ last exploded in the GFC and threatened to ruin the world economy, the Irish government feared that all the unsecured ‘at call lenders’ to Irish banks (aka depositors) would make ‘a call’ and demand the return of their loans and in doing so send Irish banks bust.
To avoid this happening the Irish government decided to give a guarantee to the unsecured lenders to the private banks that if the banks could not honour their liabilities to those lenders the taxpayer would instead.
Yes, the government offered that Irish taxpayers would honour the unsecured loans that the Irish banks could not.
Not surprisingly a government guarantee suddenly made the unsecured lending of money to Irish banks very attractive and other governments around the world, including the Australian government soon followed the lead of the Irish government.
So for approximately the last 10 years governments around the world have provided a guarantee that if a bank cannot honour its ‘at call’ contractual obligations the government will do so.
Many people quite reasonably ask “Why on earth is the government guaranteeing unsecured loans to private organisations like banks?”
It is a very good question because the loans are UNSECURED and the meaning of that should be obvious to everyone.
Why not have the government guarantee the repayment of ALL unsecured loans made by anyone to anyone and not just banks.
The reason is straightforward.
Those unsecured loans to private banks are called ‘deposits’ and just about everyone seems to think that a ‘deposit’ is somehow different and is not really an unsecured loan that is highly risky considering the legalised scam model of modern banking.
But will the Australian government actually honour the deposit guarantee if required to do so?
Another good question and more than a few people have their doubts.
Where do you think the billions of dollars of green $100 notes are as they are not circulating in the shops?. Why do people keep blocks of gold in safety deposit boxes or buried in the garden?
Keep in mind that the government is only prepared to guarantee up to $250,000 of your unsecured loans to any particular bank.
Keep in mind that the next time a crisis erupts in the banking system a future government may decide that it cannot or is not willing to make everyone bear the cost of the losses of those who made unsecured loans to the banks.
Future governments may decide that you will only revieve 80, 70, 60, 50 cents in the dollar or less for your unsecured loans ‘private bank deposits’ that have gone bad when your dodgy private bank goes bust.
Is calling our banks dodgy unfair or just accurate in this post Bank Royal Commission world?
A better solution
There is a better solution and one that is very simple.
1. People who wish to make unsecured loans to private banks ‘ private bank deposits’ and receive interest for taking the risk involved can continue to do so but there will be no government guarantee.
2. People who just want a 100% safe place for their savings will be allowed to open an account at the safest bank in the county. The RBA. They will not receive any interest but they will have complete safety.
What could be fairer than that?
Complete safety for those that need it or want it and interest for those prepared to make risky unsecured loans to a private bank.
To read more on what a MyRBA savings account might look like.
So what’s the problem?
The Reserve Bank of Australia refuses to allow you or anyone one other than a private bank to open an account at the RBA.
In fact they openly resist the idea and insist that the role of the public central bank is to provide support and services to the private banks.
Why would they do that?
Why would they force you to make risky unsecured loans to private banks (private bank deposits) and rely on future governments to honour the repayment of those loans when all you want to do is save your money safely.
Some suggest it is because they want to force you to use a private bank by giving you no effective alternative……other than a mattress full of $100 notes.
Can you imagine the Water Department turning off the taps to force you to choose between Coca Cola and collecting rainwater in a bucket?
Perhaps this is a question for an extended Royal Commission into banking to ask.
The really odd part of refusing to allow members of the public to open accounts at the RBA is that there is clearly no objection to the general public holding central bank liabilities in the form of notes and coins.
They just dont want you to have access to the convenience and security of a MyRBA account.
MyRBA accounts for every Australian who wants them should be a policy of every political party at the next election but especially the party that promotes itself as the party of individual choice.