Posted
While the coronavirus pandemic is primarily a public
health issue, it's having a major impact on the economy and the
financial system.
With thousands of Australians feeling anxious about their future, many are wondering if their money is safe with the banks. Renowned economist Richard Holden from the University of New South Wales says Australia's banking system is very healthy and will withstand the pressures of the pandemic.
"Don't withdraw all your savings because you'll just end up with $10,000 in cash under your mattress and that's probably quite unsafe," Professor Holden said.
"You're better off just leaving it in the bank."
You're savings are guaranteed
We've seen toilet paper run off the shelves in recent weeks but Professor Holden said he didn't expect a run on the banks.Why? Because Australians' savings are guaranteed by the Federal Government under the Financial Claims Scheme.
The scheme provides protection to deposits up to $250,000 held in banks, building societies and credit unions, and to policies with general insurers in the unlikely event that one of these financial institutions failed.
Professor Holden said the scheme was introduced after the global financial crisis in 2008 to boost people's confidence in the banking system.
"By having a government guarantee in place there's no point in anyone going and yanking their money out of their bank and putting them under pressure," he said.
The scheme could only be activated by the government.
If that happened, your money would be returned to you within a week.
What about my mortgage?
If you've been worried about your bank failing and demanding your mortgage back, rest easy.Professor Holden says it is illegal for banks to accelerate loan terms.
"They can't come and say to you, 'You've got a $500,000 loan and you have $450,000 outstanding and we want it now."
There's another safety net
Professor Holden says another safety net exists to catch Australians and their hard-earned savings: it is the Reserve Bank of Australia's Committed Liquidity Facility (CLF).
The facility, which was introduced as part of a suite of international banking reforms in the wake of the global financial crisis, served to ensure banks were in a solid financial position.
"These reforms were put in place to ensure the banks themselves don't need bailing out," Professor Holden said.
He said while the CLF added an extra layer of protection, the Australian banking sector was fighting fit prior to the spread of coronavirus.
"Stress tests have been done routinely since 2008 and Australia's banks have consistently come off as really healthy," he said.
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While the banking sector hadn't necessarily prepared for the impact of a rampant novel virus, Professor Holden said it had been planning for another shock.
"The extensive planning and stress testing that's gone on should give people a lot of confidence about the health of our banks going into this pandemic."
Government is spending big
This week the Federal Government announced it would spend $130 billion on coronavirus wage subsidies for businesses to pay workers.This commitment brought the government's total support for the economy to $320 billion across the forward estimates.
Peter Martin from the Australian National University's Crawford School said these figure demonstrated the government's commitment to the economy.
Your questions on coronavirus answered:
He said Australians should keep their money in their bank accounts and have faith the economy will recover over time.
"There are 13 million people working in Australia and the government will now be paying six million of them — that's what makes me confident the banks will be alright," he said.
"And when this is over companies on the share market will be alright, too."
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