Top banking regulators urged the federal government to consider charging banks a fee in exchange for the taxpayer guarantee on deposits, in a move that could have raised up to $38 billion over 25 years, previously secret documents show.
Senior officials from the Reserve Bank, Treasury and the Australian Prudential Regulation Authority last year discussed the pros and cons of levying an annual fee in exchange for the Financial Claims Scheme - Canberra's guarantee of bank deposits.
The deposit scheme, introduced during the global financial crisis, guarantees all deposits worth up to $250,000. But unlike similar programs overseas, banks and savers are not required to pay for the safety net.
Details of the regulators' push for a levy are revealed in heavily-redacted documents released yesterday after a freedom-of-information request from the Australian Financial Review.
A scheme that charged banks 0.05 percentage points of deposits of less than $250,000 covered was projected to raise $37.8 billion after 25 years, the papers show.
Instead of introducing a levy, federal Labor opted for a scheme whereby the government would cover the cost of reimbursing all deposits worth up to $250,000 if a bank collapsed.
This money would then be recovered from the collapsed bank's assets, and there would be scope to introduce a tax on the financial system to cover any further costs.
While the RBA, Treasury and APRA fell short of endorsing the new levy on the banking sector, they outlined several benefits of such a fee.
A fee could allow the government to form a special-purpose fund for covering the cost of any potential banking collapse, and could help reassure depositors.
"Having a special purpose fund may also help in meeting [Financial Claims Scheme] payments at a time when public finances may not be as strong as they currently are, which could provide additional comfort to depositors," one of the documents says.
On the other hand, it said the insurance fee could raise challenges for the government.
For one, it would be labelled a "tax" because of the large amount of revenue it would raise. The fee could also be criticised as anti-competitive by credit unions and building societies, because they rely on deposits for a larger share of their funds, one of the documents says.