Busting the Bank

A plan to shave almost 7% off the savings of Cypriot bank account holders might have been dumped by the European Union but, in Aotearoa, the same scheme is being spearheaded by the Reserve Bank. The Open Bank Resolution (OBR), a proposal to give banks power to dip in to depositors' savings to offset debt, has been tabled with submissions open until April 30th.

Reserve Bank head, Graeme Wheeler does not appear to favour the deposit insurance schemes which operate across the ditch for deposits up to $250,000. Green Party co-leader Russell Norman slammed the proposal saying the savings grab is "unprecedented in the world". "Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.

Moves to use savings to repay bank debt were not only scrapped in Cyprus but in 2008 when Icelandic bank Icesave went bust. Yet, the prospect of New Zealand account holders losing part or all of their deposits looms on our horizon with Finance Minister, Bill English supporting the OBR saying, it's up to individuals to choose robust institutions to avoid sharing the debt burden of a collapsed bank.

In this environment, growing disillusionment with neo-liberal economics has given rise to a clamour for an overhaul of banking systems. In Aotearoa, Auckland barrister Andrew Hooker represents the orthodox side of this backlash. Backed by several Ozzie law firms, the barrister has unleashed a $1b law-suit on the large Australian-owned banks ANZ, ASB, BNZ and Westpac as well as NZ-owned Kiwibank. The class action is an effort to claim back high default fees paid by account holders. The case is being watched with avid interest by those in the finance sector with centrist finance commentator Rod Oram questioning the eyebrow raising profits made by Australasian banks at a time of economic recession.

Those with an appetite for revolution might relish the prospect of a global collapse of financial systems after the US subprime catastrophe and the ongoing crisis with the Euro. Many find it hard to swallow the fact that those who champion the free market appear to rely on socialist-type nationalisation when they fail. Sceptics see the banking giants as exploiting their pivotal role as gate-keepers of capital. The rest of us might bleed from a thousand cuts but the banking sector can sink its teeth into its own jugular in the full expectation of a life-saving transfusion by government.

Events post 2008 have reinforced the belief that such intervention goes ahead without any common sense constraints or changes made to the practices that brought about the crisis. The ultimate hubris of the finance sector was demonstrated by the US banks when they accepted billions of federal dollars without capping the inflated salaries and shuddering large bonuses of their executives.

It's one of the unfathomable contradictions of the developed world's brand of capitalism - that whilst a homeowner or entrepreneur endures bankruptcy when they cannot meet their outgoings, the very institutions which demand their ruin get 'no strings' government bail outs when their financial practices bring them to their knees. Today's banks rely on a guilt-edge rescue package from the taxpayer no matter how they conduct their business. This truth has been laid bare by 21st century events.

ENDS

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