THE Federal Government took emergency measures to protect the banking system and in particular the Queensland bank Suncorp-Metway on "Black Friday", October 10 last year.
Canberra first canvassed the opinions of leading business figures as the global credit crisis sent markets into a tailspin. Corporate adviser Mark Korda told BusinessDay he was among those telephoned by government officials expressing concern.
This confirms speculation that Suncorp's precarious financial position spurred the Government to act swiftly in bringing in the deposit and wholesale funding guarantees to thwart a run on the bank.
The co-founder of KordaMentha, a firm with broad insolvency experience thanks to the administrations of Ansett and Westpoint, said his advice had been sought on the status of the regional banks.
"We were called on the Friday that the market fell," Mr Korda said. "We were asked for some input on that day regarding the proposed bank guarantee. Look, I think it's no secret that Suncorp-Metway was the bank that was under pressure; there was a fear of a run on one of the regional banks, and Suncorp was the one the Government and many others thought might be the most vulnerable."
He said that he agreed that a guarantee of deposits was necessary. "I have absolutely no doubt that, without that government guarantee, there would have been a run on one or more regional banks in Australia," he said. "The Government acted very quickly and the actions they took that weekend and the stance they made averted that."
Merrill Lynch Australia's chief executive, Paul Masi, said he was aware of the problems the bank sector was facing that week and believes a run on them had already begun.
"Even the big banks were seeing people lining up and taking cash out," Mr Masi said. "Any bank, no matter how big, if we all walk up to take our money out, then the bank is stuffed."
On the day of the frantic ring-around, October 10, the All Ordinaries index recorded its worst session since the October 1987 crash.
Two days later, the Prime Minister, Kevin Rudd, announced the unlimited guarantee of deposits, which removed the threat of a run on an Australian bank. The banks remain underpinned by the guarantees despite the stabilisation in financial markets over recent months.
A spokesman for Suncorp said yesterday that the "notion that the Government guarantees on wholesale funding and bank deposits were introduced solely for Suncorp's benefit is both simplistic and wrong".
Frequently Asked Questions about this Article…
Why did the Australian Government impose bank guarantees during the market turmoil?
The Government took emergency measures to protect the banking system after severe market falls on “Black Friday” (October 10) and concerns about a possible run on regional banks. Officials canvassed business leaders and advisers, and the guarantees were introduced to stabilise deposits and wholesale funding amid the credit crisis.
Was Suncorp-Metway the reason the government introduced the deposit and wholesale funding guarantees?
The article confirms speculation that Suncorp-Metway's precarious financial position helped spur the Government to act — advisers said Suncorp appeared vulnerable and under pressure — but a Suncorp spokesman said it would be simplistic and wrong to say the guarantees were introduced solely for Suncorp’s benefit.
What exactly did the Government guarantee to protect Australian bank customers?
Two days after the market rout, Prime Minister Kevin Rudd announced an unlimited guarantee of deposits. The article also refers to deposit and wholesale funding guarantees aimed at removing the threat of a run on Australian banks.
Did the government guarantees actually avert a run on Australian banks?
According to corporate adviser Mark Korda, the government guarantee was necessary and without it there would likely have been a run on one or more regional banks. Merrill Lynch Australia’s CEO Paul Masi also said he believed a run had already begun, and the guarantees removed that immediate threat.
How bad were markets on the day the Government started emergency consultations?
On October 10, the All Ordinaries index recorded its worst session since the October 1987 crash, and advisers and bank executives reported people lining up to withdraw cash from banks — even the big banks were seeing customer withdrawals.
Who did the Government consult before imposing the bank guarantees?
Government officials telephoned leading business figures and corporate advisers. The article cites Mark Korda, co-founder of KordaMentha, as one of the people contacted, and notes awareness of the banking problems from industry figures such as Paul Masi of Merrill Lynch Australia.
Are Australian banks still supported by those government guarantees now that markets have stabilised?
The article states that banks remain underpinned by the government guarantees despite stabilisation in financial markets over recent months, indicating the support was still in place at the time of reporting.
How did Suncorp respond to suggestions the guarantees were introduced primarily for its benefit?
A Suncorp spokesman said the notion that the Government guarantees on wholesale funding and bank deposits were introduced solely for Suncorp’s benefit is both simplistic and wrong.
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