What to do if your bank collapses
In the current climate it's near impossible to avoid news about the pending credit crisis. European and American economies are flailing, depleted by lost confidence and buoyed only by Government incentive cash injections. With the fall of US global investment bank Lehman Brothers last month, fears of the worst led to the US government bailing out AIG, one of the world's major insurance corporations, deemed "too big and too influential to collapse". So how does all this turbulence affect you? What should you do to protect your investments? With seemingly ubiquitous news of banks collapsing globally, should you be worried about your bank or credit union? Money Buddy discusses the credit crisis and what you can do.
If your bank goes bankrupt: How to protect your money
Any financial advisor will tell you that it's impossible to predict the future; nobody knows exactly what will happen - you may hear some say that the financial crisis is being blown out of proportion, whereas others will say that the worst is still to come. In light of the Government's new $10.4 billion economic rescue package, Australia will be in a better position to handle the market unrest. However, you still need to be sure of the facts to know exactly how the credit crisis may affect you.
If you have strong doubts about your bank's survival chances, seek specific advice from your financial advisor or accountant, and then decide whether to stick or twist. If you decide to move your funds, it's a good idea to switch to one of the "big four" institutions (Commonwealth Bank, Westpac, NAB and ANZ) to maximise chances of security.
Those having already taken out bank accounts with any of the big four will no doubt be in the strongest position to ride out the situation. Only this week Prime Minister Kevin Rudd stressed the health of Australia's major banks, stating that all four are in the world's Top 20 list of AA-rated banks - encouraging stuff for every Aussie contemplating the bigger picture.
Protecting your investment: Bank deposit guarantees
If you have serious concerns that your bank or building society could go under, speak to your bank manager and seek reassurances. If you cannot get these, consider moving your funds elsewhere. What's important to know is that, in the unlikely event of your bank going under, you may have to wait a very long time to access any of your invested funds, due to a potentially lengthy liquidation process. The Government has "proposed" that every customer has rapid access to up to $20,000 of their funds, but currently this legislation is not in place (unlike in the US, which covers up to US $100,000 via FDIC insurance). As it currently stands, you would almost certainly need to undertake a drawn out litigation process to reclaim funds. This is why it's crucial to know where you stand with your bank.
Worldwide credit crisis
Whilst it's not all doom and gloom, it is worth keeping abreast of news elsewhere, since the current credit crisis affects all nations, not just some nations; never before has a recession been so globally relevant. To put in perspective how dire matters are in Europe, Iceland's banking system is currently GBP £35billion (roughly AUS $87 billion) in debt - equivalent to £116,000 (AUS $288,000) for every man, woman and child in Iceland. The crisis is such that earlier this month the British Government issued a freezing order for an estimated £4 billion (nearly AUS $10 billion) against Landsbanki, under the 2001 Anti-Terrorism, Crime and Security Act.
With the right handling by Mr. Rudd and Mr. Swan - and so far the Government has shown encouraging signs - there is no need to assume that Australia's smaller banks and credit unions will go the way of Landsbanki. However, be vigilant, and seek the most relevant advice possible from a certified advisor. In the first instance, if you are concerned, make it a priority to speak with your bank manager.