Banks surge as levy impact reassessed

The proposed deposit insurance levy could prove to be attractive for foreign investors

After the pounding they took yesterday, the big four banks have bounced back with a vengeance this morning shaking off fears of the impact from a proposed new deposit insurance levy.

The recovery began late yesterday but gathered pace this morning as analysts began factoring in the positive impact of a government guarantee on all deposits.

At 5c for every $100, the deposit insurance  is considered cheap and could make the sector more attractive to foreign investors, many of whom dumped the sector when the Australian dollar slumped after Federal Reserve chairman Ben Bernanke raised the prospect of winding back America’s monetary stimulus.

Given the dominant market position of the big four banks, and the threat to pass on the costs to customers, there would appear to be very little impact on bank earnings, a factor that has propelled the stock price recovery (see John Abernethy's Bank stocks a hold strategy).

ANZ led the charge this morning, rising 1.8%, with Commonwealth bring up the rear with a 0.8% lift.

The impasse between the banks and the Government over the new levy could come to a head next week if the Reserve Bank cuts official rates by 25 basis points. It is likely the big four banks will not pass on a rate cut in full, effectively boosting margins while blaming the levy.

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