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There are restrictions within the framework of this scheme in that each individual, small business or community organization will be able to make "only a single claim against the scheme for each failure of a financial institution..." with all claims that are "relevant" being aggregated. Third parties will excluded from assessing the scheme to avoid a conflict of their rights under the law for making claims against the insured with life insurance policies that recognize the beneficiary ownership rights just as they are recognized under the laws that presently exist. There is a proposed 28 days grace period so that policyholders are able to find replacement policies. In the area of deposits "monetary limits would cap the cost of the scheme." (Council of Financial Regulators - Failure and Crisis Management in the Australian Financial System, 2006) Claimants will receive 90% of the "full entitlement under the scheme" in initial payouts while the remaining 10% will be paid at a later date. In the area of criteria of eligibility for small businesses and community organization targeting of the beneficiary groups will be required. In terms of geographic and demographics, it is proposed to apply the scheme only to the financial institution's liabilities in Australia, reflecting the objective of the scheme as a limited customer-protection device." (Ibid)
In terms of currency under the scheme the proposal is for application of the scheme to "relevant Australian dollar denominated liabilities" with no coverage in place for paying liabilities in foreign currency. There will be no netting/set-off in order that the value of assets of the financial institution be preserved as well as there being simplification in the process of value of assets in liquidation being established. (Council of Financial Regulators - Failure and Crisis Management in the Australian Financial System, 2006) Funding and levy arrangements are of the nature that the scheme would be funded post-event. (Ibid; paraphrased) Initially the funding will be through "a standing Budget appropriation.." To be followed by sale of the distressed institution's assets.
SUMMARY and CONCLUSION
It is stated that "if the scheme is to operate independently" then legislation is required which makes specific arrangements for governance and operation including "defining the powers, responsibilities and accountabilities of the scheme administrator as well as details of the scheme's coverage and sources of liquidity."
This legislation would serve to provide the definition and limitation of the scheme's coverage. The Council reports states that there are still areas that must be precisely specified as well as determination of relevant compensation limits being set out which will be guided by costs and coverage and the limits set in this scheme.
Bibliography
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Should Australia Introduce Deposit Insurance in Banking?
bibliography/2005/diab2005.pdf#search=%22Australia%20explicit%20deposit%20insurance%3A%20advantages%20-%20disadvantages%22.
Chai, Jingqing, and R.B. Johnston. 2000. An Incentive Approach to Identifying Financial System Vulnerabilities. Working Paper WP/00/211. International Monetary Fund.
Cull, Robert, Lemma W. Senbet, and Marco Sorge. 2001. Deposit Insurance and Financial Development. Policy Research Working Paper no. 2682. The World Bank.
Demirguc-Kunt, Asli, and Enrica Detragiache. 2001. Does Deposit Insurance Increase Banking System Stability? An Empirical Investigation. Policy Research Working Paper no. 2247. The World Bank.
LaBrosse eds (2005) the Role of Deposit Insurance in Contributing to Financial Stability: A Global Perspective (nd) International Association of Deposit Insurers (IADI) Online available at http://www.iadi.org/html/App/SiteContent/Speech%20Nigeria%20Final%20%2015092005.pdf
Somogyi, Steve (2006) Regulation of the Insurance Industry. AON Re Hazards Conference 2005 Online available at http://www.apra.gov.au/Speeches/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=9151.
Council of Financial Regulators - Failure and Crisis Management in the Australian Financial System (2006) Online available at http://www.treasury.gov.au/documents/1040/PDF/Crisis_Related.pdf
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