The government will set a permanent cap of $250,000 per person, ensuring protection for 99 per cent of savings accounts.
Treasurer Wayne Swan said on Sunday a new permanent cap for the Financial Claims Scheme (FCS) of $250,000 per person per financial institution would be introduced from February 1, 2012.
The current cap of $1 million, introduced during the global financial crisis (GFC) in October 2008, had been under review since May this year.
Mr Swan said this would protect the savings held in around 99 per cent of deposit accounts at authorised deposit-taking institutions (ADIs) incorporated domestically in full.
‘It will ensure that we continue to have one of the most generous and secure deposit insurance schemes in the world, and builds on the government’s record of ensuring our financial system remains among the strongest in the world,’ Mr Swan said in a statement.
The Council of Financial Regulators advised the cap should be set at a new, permanent level, Mr Swan said.
Members of the council include the governor of the Reserve Bank, the Secretary to the Treasury, and the chairs of both the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.
The Australian Bankers Association (ABA) said the scheme provided more protection to the industry.
‘The combination of healthy, profitable banks and strong prudential regulation is the best guarantee we have that our money is safe in the bank,’ ABA chief executive Steven Munchenberg said in a statement.
‘The FCS gives an additional layer of insurance.’
Abacus – Australian Mutuals, the industry body for mutual banking groups, said the government’s decision reflected the ‘strong practices’ of local financial institutions in lending and risk management.
Mutual banking groups include credit unions, building societies and mutual banks.
‘Today’s announcement is a vote of confidence in the strength and stability of Australia’s banking institutions, including mutuals,’ Abacus chief executive Louise Petschler said in a statement.
The government created the scheme in October 2008 to protect depositors in ADIs from loss on their deposits if their institutions went bust as concerns about credit markets were at their peak during the GFC.